Coca-Cola Amatil to avoid acquisitions while prices remain high

Posted by Daniel Palmer on 26th June 2009

Coca-Cola Amatil is set to meet their forecasts of a record profit but are still not interested in a play for Foster’s while they are anchored with a struggling wine division.

Managing Director Terry Davis yesterday indicated to delegates at an American Chamber of Commerce event that his company was looking into the prospects of acquiring smaller competitors but remained aware of their size and consequent difficulties with getting regulatory approval.

“I think Graeme Samuel has come out and said, ‘look we’re not in the business of protecting companies from going broke’, and I think that’s the position the ACCC are going to take,” he said, according to the ABC. “So I don’t think competition law is going to bend simply because there is risk of company failures.”

“What is going to happen though is that, as the strong get stronger and the weak get weaker, that there will be the opportunity for those strong, once the lending markets free up a bit, they’ll gobble them up, that’s inevitable.”

In contrast to Mr Davis’ assertions, Mr Samuel has admitted that the recent acceptance by the ACCC of deals for Bank West (by Commonwealth) and Macro Whole Foods (by Woolworths) was influenced by the fact that the two companies to be acquired were under severe financial pressure (in the case of Bank west there parent was under great stress).

Coca-Cola Amatil has remained content to grow organically, however, as their boss argues the prices being paid for companies like Schweppes, Frucor and Dairy Farmers are over the top.

“Private equity were prepared to pay unbelievable (price to earnings) multiples for beverage and food companies, and I kept on saying to myself I must be dumb, because I can’t see how these guys are going to make a profit when we can’t see where this profit’s going to be,” he remarked. “I’m not sure that (there is value) at the multiples … that are being paid for beverage companies in the last 12 months, even during the tougher times… we’ll be growing organically for quite some time.”

And, as for Foster’s? There remained “logic” in a tie-up of beer and soft drinks but despite a restructure they would not be interested in purchasing Australia’s largest brewer unless the wine division was not included in the deal.

A beer and beans recession?

Mr Davis believes Australia may still enter a technical recession given growing rates of unemployment but sees his business as quite resistant, with a surge in premium beer and baked beans helping their bottom line.

“Our premium beer sales are up over 50 per cent this year, yet our SPC baked beans are up about the same amount, just growing extraordinarily,” he told delegates. “Why? Meal replacement, cheap meal replacement and doing very well.”