Coke To Buy Water Maker For $4.1B

The Coca-Cola Co., which has been looking to expand its water and energy drink portfolio and jump-start sales in its struggling North America unit, said Friday it has agreed to buy Vitaminwater maker Glaceau in a cash deal valued at $4.1 billion.

The world's largest beverage maker said the agreement to acquire privately held Energy Brands, Inc., known as Glaceau, provides Atlanta-based Coca-Cola with a strong platform to grow its active lifestyle beverages.

The transaction, Coca-Cola's largest acquisition ever, will be financed with debt and is expected to add to Coca-Cola's earnings per share starting in 2008, but will slightly dilute earnings per share this year, executives said.

Coca-Cola's chief financial officer, Gary Fayard, said in a conference call with analysts that the deal for full ownership of Glaceau includes the 30 percent stake of Glaceau held 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 paid $677 million for the stake last year based on an enterprise value of $2.2 billion for the entire company, Coca-Cola said.

Fayard added that the deal could have an impact on the company's share repurchase plan. Coca-Cola had previously said it would buy back $2.5 billion to $3 billion of its own shares this year. Fayard said Thursday the company now expects to repurchase at least $1.75 billion to $2 billion in shares in 2007.

"Let me be clear, we will operate this business to create value for Coca-Cola shareowners," Coca-Cola Chief Executive Neville Isdell said during the conference call with analysts.

Fayard said the company expects cost savings from the 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.

The deal to buy Glaceau, which will operate as a separate business unit within Coca-Cola's North America segment, is expected to close in the summer. It is subject to regulatory review. The boards of both companies have approved the transaction.

Glaceau is an attractive acquisition for Coca-Cola because of its position in the enhanced water and energy drink categories, which Coca-Cola is betting will make up a large portion of the beverage industry's volume and gross profit growth in North America through 2010.

Coca-Cola said Glaceau's top three executives — founder and CEO J. Darius Bikoff, president Mike Repole and Chief Financial Officer Mike Venuti — intend to lead the business for at least three years, and that other key managers will remain in the business.

A spokeswoman for Glaceau, Nina Fiddian-Green, declined to discuss her company's corporate structure and financial information, and she referred questions to Coca-Cola. Glaceau does not release annual sales figures.

Coca-Cola has been trying to improve sales in its key North America unit. The company reported a 14 percent increase in first-quarter profit on a double-digit rise in overall sales, though in North America unit-case volume declined 3 percent in the quarter.

In announcing the deal to buy Glaceau, Coca-Cola executives repeated their effort to re-ignite growth in North America.