A Hidden Spin-Off
Coca Cola Enterprices (CCE) purchases soda syrup concentrate from Coke (KO) and bottles / distributes its products including Coca-Cola, Sprite, Poweraid, Densani, etc... On February 24th, Coke (KO) announced that it was purchasing the North American bottling operations of Coca Cola Enterprises. After the transaction is completed and shreholders are paid a $10/share dividend (likely some time in Q4), CCE will only be left with its European operations, so in essence this transaction acts almost like a spin-off of the company's European business without the official title.
Interestingly, CCE's European operations are actually a much better business than the part of the company that is being sold. The area that CCE Europe operates in, currently Britain, France, and Belgium plus the addition of the Norway and Sweden as part of the Coke purchase agreement, has significantly lower per-capita soft drink consumption than in the United States. As a result, CCE has more room to grow now that it only operates in Europe.
This transaction enables shareholders to purchase the crown jewel of CCE's operations, with higher margins, better ROIC, and better growth at a reasonable valuation. Like all spin-offs CCE management will now be free to focus its full efforts on growing the company's European operations.
No position in CCE