Coca Cola Inks Deal to Guzzle Middle East & Africa Growth

KO: The Coca-Cola Company logo
The Coca-Cola Company

The Coca Cola Company (NYSE:KO) agreed to buy 50% equity of Aujan Industries in a deal worth $980 million. The deal also includes a 49% stake in the company’s bottling and distribution business. With this, Coca Cola will have a greater presence in a region in which it has struggled historically. Aujan Industries has revenues of more than $850 million and is amongst the top 100 companies of Saudi Arabia. [1] Coca Cola currently competes with companies like Pepsi (NYSE:PEP) and Dr. Pepper Snapple Group (NYSE:DPS) and other domestic players.

We estimate a $75 price for Coca Cola, which is more than 10% higher than the market price.

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See our full analysis for  Coca Cola

Win-Win Situation

The deal will give Coca Cola a strong foothold in the Middle East and North African markets. Aujan is the producer of the popular juice drink Rani and Barbican, a popular non-alcohol malt drink. Coca Cola can use its distribution networks to launch these products in new markets. The deal also gives Coca Cola access to Aujan’s bottling distribution, which can be used to accelerate the growth of its namesake product Coca Cola, Sprite and other carbonated soda drinks (CSD). Infusion of capital means Aujan can set up manufacturing plants to tap new markets. Getting a foothold in Middle East was important for Coca Cola as it has only 12% market share in the CSD market, compared to PepsiCo’s 85%. [2]

Lucrative Market

The Middle East offers a tremendous opportunity for companies in beverage industry due to its high proportion of young population and a growing consumer base. Most of the region is in medium-to- high income group and is growing at a healthy rate. We expect the region’s GDP to grow by 3.9% this year. Aujan has doubled its sales in Egypt this year and grabbed a market share of 10%. The move will Coca Cola the ability to expand both in the CSD and the non-CSD segment. The move is in line with Coca Cola’s policy after it announced its plan to spend $5 billion in Middle East earlier this year. [3]

Understand How a Company’s Products Impact its Stock Price at Trefis

  1. It’s the real thing for Coca-Cola in the Gulf, The National, December 15, 2011 []
  2. Coca-Cola to Expand in Mideast, WSJ, Decmber 15, 2011 []
  3. Coke invests $980-million in Saudi drinks company, The Globe and Mail, December 15, 2011 []