Coca-Cola dismiss Foster’s speculation but Schweppes still an option

Posted by Daniel Palmer on 9th July 2008

Ever since the AGM of Coca-Cola Amatil (CCA) in the middle of May rumours have been circulating that CCA will consider a takeover of Foster’s or the beverage operations of Cadbury-Schweppes.

The rumours strengthened when CCA CEO, Terry Davis, told reporters at the time that a purchase of Schweppes would make sense. However, some believed this was merely a diversion and their real target was Foster’s.

Mr Davis has now quashed the Foster’s speculation via an interview with the Australian Financial Review. He advised that the price of Foster’s was considered to be an overvaluation by CCA at the present time.”At today’s share price, [Foster’s] doesn’t represent value to us and I’m not interested,” Mr Davis told The Australian Financial Review.

Mr Davis added that he believed the much publicised struggles of Foster’s wine business were of concern but so too was the “decline” of VB and Crown, two of Foster’s most popular beer brands.

The company is reportedly still considering making a bid for Schweppes, which some analysts predict will be on the market by the end of the year.

Following the recent demerger of Cadbury-Schweppes in North America, Australia is the only country where Cadbury still maintains a drinks operation. Consequently, it would be no surprise for Cadbury to strongly consider any bid from CCA; regulatory approval, on the other hand, may prove harder to come by. CCA did, after all, make a bid of $1.85b for Schweppes just under a decade ago but were foiled by the ACCC.

The landscape of the beverage industry has since changed, however, and they may have a greater chance of getting approval from the ACCC now.

With CCA’s market capitalisation below that of Foster’s a takeover would have been difficult to fund and a play for Schweppes always appeared more logical.