Corporate Front: M&A [Can Coca-Cola Bottle up the Chauhans?]

CORPORATE FRONT: M&A
Can Coca-Cola Bottle up the Chauhans?

Ramesh wants to sell off the four bottling units; but brother Prakash still doesn't.

By George Skaria

R Chauhan There's a message in the bottle. And it's being floated towards the $18.86-billion The Coca-Cola Co. by Ramesh Chauhan, the 58-year-old CEO of Parle Exports. Five years after selling off his 5 soft-drink brands to Coca-Cola India, the ex-cola czar now wants to hive off the 3 bottling companies jointly owned by his brother, Prakash Chauhan, 52, the CEO of Parle Agro, and him. The asking-price for their stake in Delhi Bottling Co. and Coolaid (in Delhi), and Parle Beverages (Mumbai): $60 million (Rs 240 crore).

This may yet take a while. For, Prakash-who owns Parle Bottling in Patalganga, and controls a 50 per cent stake in both Parle Beverages and Delhi Bottling-is blocking the sale of the 2 units. Even if Ramesh-who fully owns Coolaid, and the remaining 50 per cent stake in the 2 companies in Delhi and Mumbai-agrees, the units can be sold only when both siblings agree to sign on the dotted line.

A business-as-usual Ramesh explains why he decided to sit across the table with Coca-Cola India: ''I did not want to remain a mere bottler as I had no say in the macro- management of the brands' marketing strategies.'' However, the potential acquirer is not celebrating-yet. In a guarded reaction, Donald Short, 45, CEO, Coca-Cola India, says: ''We have been in dialogue with the Chauhan brothers for joint venture operations. If they are not willing to do that, we will be happy to buy out the franchising operations. We are hopeful that they will decide, one way or the other.''

Prakash Chauhan Why is Prakash-who did not speak to BT-reluctant to get out of the bottling units, especially since he was the driving-force behind the sellout of the brands 5 years ago? On the one hand, he has consistently articulated his commitment to the franchising arrangement with Coca-Cola. This is a statement he made in October, 1997: ''Both Coca-Cola and we understand each other's business objectives and, together, we are implementing strategic initiatives for long-term success.'' On the other, BT learns that Prakash is not keen on extending support to either a joint venture with Coca-Cola India-a distinct possibility if Ramesh chooses to divest his stake-or a sellout.

This unwillingness probably stems from the poor state of Prakash's other businesses. Parle Agro-which produces Frooti, the pioneering tetrapack mango-flavoured drink, and the mineral water brand, Bailley-is not in the pink of health. Complicating matters is the constantly-changing, and often tempestuous, relationship between the brothers Chauhan.

While Frooti continues to dominate the Rs 300-crore tetrapack beverages segment, with a marketshare of nearly 65 per cent, its sales are not displaying the fizz of upstarts, like the Rs 300-crore Enkay Texofood's Onjus fruit-juice. For instance, Frooti's franchising operations in Hyderabad and Delhi have been suspended for some months now. BT also learns that Ramesh is unhappy with the slipping sales of Frooti in the Mumbai market, where Parle Agro's franchisee is Parle Beverages (in which Ramesh has a 50 per cent stake). To add insult to injury, Ramesh is unwilling to shoulder Frooti's losses in the Mumbai market.

Conversely, Parle Agro's mineral water brand, Bailley (marketshare: 27 per cent), is doing quite well, but it is in direct competition with Ramesh's Bisleri brand (52 per cent). Although the latter is controlled by Coca-Cola India under a licensing agreement, the brand-which is owned by one of Ramesh's companies, Aqua Minerale-is scheduled to revert to Chauhan in November, 1998. And with Ramesh exiting from carbonated soft-drinks, mineral water and soda are the cornerstones of his future gameplan. Says he: ''We have a big vision here. Mineral water will outsell carbonated drinks in the next few years.''

In anticipation of losing the Bisleri brand, Coca-Cola test-marketed its own mineral water brand, Kinley, in March, 1998, in Hyderabad. It is also putting into high gear its plans to set up an integrated bottling operations system in the country. Armed with the Foreign Investment Promotion Board's (FIPB's) approval to set up, or acquire, its own bottling units, Coca-Cola India's holding companies, Hindustan Coca-Cola and Bharat Coca-Cola, are moving quickly to get its 45 independent bottlers under the Coca-Cola umbrella. In the past 12 months, Coca-Cola has got 2 bottlers to sign up its joint venture programme, and has acquired the management control of 5 other bottling units.

This fits into Coca-Cola's gameplan of controlling its bottling operations to derive economies of production, purchase, and distribution. Globally, the holding companies-also known as anchor bottlers-buy out all the bottlers or set up joint venture companies in a particular region. So, Coca-Cola India's 2 holding companies have capitalised 4 downstream ventures: Hindustan Coca-Cola Bottling North-West (investment: Rs 345 crore), Hindustan Coca-Cola Bottling South-West (Rs 250 crore), Bharat Coca-Cola Bottling North-East (Rs 250 crore), and Bharat Coca-Cola Bottling South-West (Rs 345 crore).

These units are aggressively courting Coca-Cola India's other independent bottlers, most of whose franchising agreements with Coca-Cola India will come up for renewal by end-1998. That is less than 5 months away. And the Chauhan brothers are aware that the bottlers cannot call the shots-or meet the investment requirements-in a soft-drinks market that is hotting up.

Says Ramesh: ''I have told my brother that if Coca-Cola does not want us, we should not stay on.'' While a confident Coca-Cola waits for that inevitability, Prakash is temporarily resisting. No bets on who's going to blink first.

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