Is that Coca-Corona on the horizon?

Coca-Cola Amatil might have reduced its blue-sky growth options when it sold a big chunk of its alcohol business to SABMiller but rumours are rife that it is mapping out a new three-year alcohol strategy that includes bidding for the lucrative Corona beer contract once it is free to re-enter the Australian beer market next year.

Coca-Cola Amatil might have reduced its blue-sky growth options when it sold a big chunk of its alcohol business to SABMiller but rumours are rife that it is mapping out a new three-year alcohol strategy that includes bidding for the lucrative Corona beer contract once it is free to re-enter the Australian beer market next year.

Another part of its strategy is the purchase of part or all of the Foster's non-beer business. Coca-Cola Amatil has confirmed it will begin due diligence this month on the Foster's interests, which include the Australian spirit and ready-to-drink business, its Australian non-alcoholic business and the Fijian brewery, liquor and soft-drinks business for up to $180 million.

While most think Coca-Cola Amatil will buy lock, stock and barrel, there is talk that it might on-sell the spirits business, which includes Black Douglas, Cougar Bourbon, Kirov Vodka and Napoleon brandy to Beam Inc, which owns the Jim Beam brands and which has a licence agreement with Coca-Cola Amatil to distribute Jim Beam in Australia.

The details of that agreement are confidential but a well-placed industry source said Beam was interested in buying some of the Foster's non-beer business.

Coca-Cola Amatil is clearly in no mad rush to buy the non-beer interests. It has a right to acquire all or part of the business until June, and it has indicated it will take that time to do a deal.

If it was in a hurry it could have started due diligence as soon as the Foster's board approved the takeover offer from SABMiller.

The Fijian beer, spirits and soft drink business would be a great fit for Coca-Cola Amatil, which holds the Coca-Cola bottling franchise in Fiji. At one stage Foster's planned to recruit the head of Coca-Cola Amatil in Fiji to run its business.

It would also create synergies from the soft drinks business, which includes brands such as Cascade and Hi-C, which are premium but not high volumes.

Waiting until the new financial year buys Coca-Cola Amatil's boss, Terry Davis, a short-term growth filler before the company can proceed with its long-term growth strategy in alcohol. In the second half of last year it received a $165 million profit from the sale of its 50 per cent stake in Pacific Beverages.

But the long-term strategy is where the market will be focusing, given the current lack of blue-sky growth potential in Coca-Cola Amatil.

This is most likely to include

trying to win the Corona licence from Foster's and then leveraging off it to buy a boutique beer company. Corona is one of the most

lucrative beer licences in the country, generating a profit in Australia of about $70 million a year. When the licence comes up for renewal, it will be strongly sought by the big beer companies.

Last month the newly owned Foster's lost the Stella beer licence to the Japanese-owned Lion Nathan. That licence was worth about $15 million a year.

As part of the sale of Coca-Cola Amatil's 50 per cent interest in Pacific Beverages to SABMiller

for $305 million, Coca-Cola Amatil agreed to steer clear of the beer market in Australia until the end of next year. It is believed that the Corona licence will

be up for grabs around that time and one of Coca-Cola Amatil's key executives, John Murphy, will be focused on wooing it over.

Coca-Cola Amatil certainly needs a new string to its bow in terms of growth options. In an update to the market on December 16, Davis warned the company expected to report an underlying rise in net profit of 4.5 per cent in the December half.

This is its lowest rate of profit growth since 2006 and was underpinned by revenue growth in Australia and Indonesia. Its foray into SPC has been a disaster; it missed out on Frucor and Golden Circle and also missed out on Boag's.

Recent media speculation is that the company is considering re-entering the snacks food business after selling out in 1993.

The latest talk is that it might be interested in dipping its toes back in the market with a tilt at The Real McCoy Snackfood Company, which owns a number of me-too brands such as Cheesters, Burgerman and Nature's Earth.

Coca-Cola Amatil's stock is trading at $11.69, which is slightly above the $11.61 cash-and-scrip offer from Lion Nathan in 2008-09. It is worth noting that this offer came before Kirin's offer for Lion, which would almost certainly still have come and delivered a further accelerated return to Coca-Cola Amatil shareholders who took Lion scrip.

Kirin subsequently paid $12.22 a share for Lion shares which were trading at less than $9 at the time of Lion's offer for Coca-Cola Amatil and arguably would have had to pay a higher premium to take out the remainder of a stronger combined group at some point. (The scheme was designed to leave Kirin with

46 per cent of Lion/Coca-Cola Amatil, the same as Kirin owned in Lion.)

The market will await Coca-Cola Amatil's next move, but no doubt its parent, The Coca-Cola Company, will be watching even more closely to make sure the plans fit in with its own. Or then again, could it be time for The Coca-Cola Company to buy 100 per cent of Coca-Cola Amatil and get the brands it has long sought: Mount Franklin, Kirks and Deep Spring?

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