Business Today Web Exclusive

Coca-Cola Divestment

Coca-Cola India, the reluctant fizz-sharer, has finally decided to divest 49 per cent equity in its bottling subsidiary. But through a private placement. All’s well that ends well?

By Shailesh Dobhal

Coke: Sharing fizz

Almost a decade after its second coming, the Taj Mahal launch and all that, Coca-Cola India finally seems to have got its act together in this utterly befuddling market called India. It has, in a manner of speaking, started getting its eyes in - for a long innings.

Perfect time, one might think, for the world’s most globalized firm to share some of the fizz of globalization with Indian investors at large, trapped as they are in an inconvertible rupee economy even as global forces wreak havoc on so many of the companies they own shares in.

The government was to ensure that it would divest 49 per cent of the equity in its wholly-owned beverage bottling subsidiary, Hindustan Coca-Cola Beverages Private Limited (sales estimate for 2001: Rs 3,200 crore), by July 2002. Coca-Cola, however, resisted the move - arguing for a waiver of the commitment on grounds of earlier precedents, bad primary market conditions, even continued losses in India. If not that, at least a five-year moratorium.

The Indian authorities were in no mood for such concessions. A commitment was a commitment. So, it turns out, the Coke subsidiary is ready to divest 49 per cent of equity (of the claimed $785 million equity) - but to strategic investors, business allies and employees. “We didn’t need to go for an IPO, but divest 49 per cent to Indian shareholders,” says a Coca-Cola India spokesperson.

A private placement, in other words. To whom? Around 39 per cent to private investors and business partners and another 10 per cent to employees/CCI’s stock option trust. ICICI Securities and ABN Amro are helping with the valuation (and identification of potential investors), while Amarchand Mangaldas is the legal advisor.

All’s well that ends well?

Not quite. Like the Coke-logo-splashing Hindi film ‘Aankhen’, the ending of the divestment saga would pretty much be a binary affair. Either it works out to Coca-Cola India’s satisfaction, or the equity offer ends up ‘thanda’, as Coke-bashers sneeringly expect it to (it didn’t dare risk an IPO, they contend).

This, remember, is the firm that had to write off $400-million of investments in Indian operations, back in 2000 - the money that went primarily to feed its controversial acquisition of franchisee-owned bottling operations, FOBOs, starting in 1996. This, remember, is also the firm that got booted out of India by the firebrand George Fernandes in 1977 - and still remains committed steadfastly to a global vision that irks nationalists, socialists and the like.

Anyhow, what matters eventually is market performance. And Coca-Cola has registered a sales resurgence in 2002 for its carbonated soft drink (CSD) brands, thanks to a new price-point lowering strategy, coupled with some mass-targeted advertising. That’s good going.

Issue Contents Write to us Subscription Syndication