Indonesia the wildcard for Coca-Cola European Partners in Coca-Cola Amatil acquisition

At the tail end of 2020, Coca-Cola European Partners (CCEP) offered a textbook example of how to turn a crisis to one's advantage. As markets reel from the coronavirus and Coca-Cola soft drinks sales stumble, the European bottler revealed a bid for all of Coca-Cola Amatil's (CCA) shares – including the 30% owned by The Coca-Cola Co.

The timing suggests CCEP viewed the coronavirus window as an opportunity to buy CCA at a good price. Though CCA management has told Australian media they rebuffed initial approaches earlier this year to secure what they maintain is a good deal for shareholders, the EBITDA multiple of just under 11x is far below the 15x in the last big beverage deal in Australia, Asahi's purchase of Anheuser-Busch InBev's Carlton & United Breweries.

Before this weekend's announcement boosted CCA's share price, the stock had been in the doldrums post-Covid-19, dropping from a six-year high in February to a near-historical low. CCEP sensed a bargain.

However, the price is not CCEP's sole motivation. CCA has long been a trendsetter within the Coca-Cola system, and not just because it came up with the hugely-successful 'Share-A-Coke' marketing activation. 

The group has been in the Australian alcohol business for a number of years now and is probably the leading Coca-Cola bottler in the category, ahead of even Coca-Cola HBC, which distributes for leading suppliers such as Beam Suntory. CCA even set up the Australian Beer Co joint-venture with YellowTail owner Casella Family Wines, a partnership that still brews the Yenda craft beer brand.

Speaking to analysts, CCEP chief executive Damian Gammell made it clear he's keen to learn about alcohol from CCA ahead of what looks like being a new push into the category from the European bottler. 

The move is very much on message with The Coca-Cola Co, which is expanding into alcohol through the Latin American and US launch of Topo Chico Hard Seltzer as it follows through on a pledge to become a "total beverage company".

Finally, there is Indonesia. CCEP operates in a number of interesting European markets, but none has the potential of Indonesia and its a quarter-of-a-billion population. "There's a lot there to get excited about," Gammell said.

The problem with Indonesia, however, is that Coca-Cola system executives have been singing its praises for some time now, with so-far frustrating results. Six years ago, The Coca-Cola Co co-invested with CCA in the country to the tune of $500m, building new infrastructure projects. In July this year, however, CCA took a substantial write-down, mainly because of the coronavirus hit to Indonesia.

If the CCA deal goes through, CCEP will come in all guns blazing to Indonesia and will view the market as the biggest potential growth driver for the whole company. The country's success – or failure – could well come to define the entire CCA acquisition.

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