ATLANTA - Coca-Cola is betting big that Glaceau will help it expand its water and energy drink offerings and jump-start North American sales.
On Friday, the world's largest beverage maker said it would buy the privately held maker of Vitaminwater for $4.1 billion in cash. And Coca-Cola executives said the price-tag, which is nearly twice what Glaceau's estimated value was less than a year ago and represents Coke's largest acquisition ever, is worth it.
"We're looking at this as a long-term opportunity," Chief Operating Officer Muhtar Kent said.
John Sicher, an industry analyst and editor and publisher of Beverage Digest, said the price is a function of Glaceau's "astronomical" growth.
"There are simply no other privately owned brands out there which could give Coke the kind of potential Glaceau does," Sicher said. "In addition, Coke can create more value by putting it into its strong international bottlers. That will further help make this deal pay off."
The acquisition will be financed with debt, and is expected to add to The Coca-Cola Co.'s earnings starting in 2008, but will slightly dilute profits this year, executives said.
Coca-Cola's chief financial officer, Gary Fayard, said in a conference call with analysts that Coke will take full ownership of Glaceau. For now, it is 30 percent owned by holdings of India's Tata Group, a conglomerate with interests spanning steel, software services, hotels, chemicals and insurance.
The Tata stake will be acquired later than the majority stake, Fayard said. Tata will get $1.2 billion of the $4.1 billion purchase price, officials said.
Tata paid $677 million for its Glaceau stake last August, a deal that at the time valued the entire company at $2.2 billion, Coca-Cola said.
The purchase of Glaceau, also known as Energy Brands Inc., could reduce Coca-Cola's financial flexibility to buy back its own shares. Coca-Cola had previously said it would buy $2.5 billion to $3 billion of its stock this year; Fayard said Friday the company now expects to repurchase at least $1.75 billion to $2 billion in shares in 2007.
Fayard said the company expects cost savings from the Glaceau deal to develop later, and he added that Coca-Cola will invest those savings in further growth of Glaceau's brands.
Formed in 1996 and based in Whitestone, N.Y., Glaceau is the maker of Vitaminwater, Fruitwater, Smartwater and Vitaminenergy.