Soft drink firms confident over bottling deal

Date: 24/10/1996

By Elizabeth Wise

TWO months into a European Commission investigation of Coca-Cola's plans to buy out its partner in a chain of bottling plants in the UK, seller Cadbury Schweppes remains optimistic that it will be allowed to go through with the deal. The company wants to sell its 51&percent; stake in the six plants it operates in a joint venture with the Coca-Cola Company in order to concentrate on soft drinks instead of bottles.

“We feel confident that the deal will be completed,” said Cadbury Schweppes spokeswoman Dora McCabe.

The Commission is studying the sale, which would put the six plants currently owned by British firm Coca-Cola & Schweppes Beverages (CCSB) into the American hands of Coca-Cola Enterprises Inc (CCE).

As the EU's competition watchdog, the Commission wants to ensure that the sale would not give the renowned cola maker too much of the UK's market share and hinder competition.

CCSB, a joint venture set up by Coca-Cola and Cadbury Schweppes in 1987 to develop their distribution system, is the largest producer and distributor in the UK and is already estimated to hold one-third of the British soft drinks market. It also distributes Nestlé Group, Capri-Sun and Appletise mineral water brands. Sales in 1995 totalled 1.1 billion ecu.

CCSB's closest competitor is Britvic (a subsidiary of Bass brewers), which has about a quarter of the market.

But despite CCSB's dominance, the UK mergers and monopolies commission ruled in 1991 that the joint venture was not monopolistic or anti-competitive.

That gives Cadbury Schweppes reason to hope that the European Commission will think the same way.

“The Commission will be taking that into consideration,” said McCabe.

UK officials are less sure. “The Commission is under no obligation whatsoever to follow what a national office has decided in the past. Any assessment by the Commission is wholly independent,” said one.

The UK government will have a chance to make its views known when the advisory committee on competition policy, which pulls together anti-trust representatives from each member state, scrutinises the 875-million-ecu deal. Although committee members will not reveal when they will take their first look at the agreement, national officials hint it may be soon.

Equipped with advice from the advisory committee and the findings of the Commission's mergers and acquisitions investigators, the Commission must decide before 13 January whether to approve the sale.

A UK official said he thought Coca-Cola would not be accused of monopolistic practices by buying the bottling plants because their combined market share was “far short of being a monopoly”.

But an official in a competing soft drink company maintained that smaller rivals saw Coca-Cola's purchasing power as almost impossible to compete with. “The size of the (CCSB purchase) deal implies it is monopolistic in some ways,” he said.

While Coca-Cola and Cadbury Schweppes would continue to own and promote their own drink brands, the bottling operation would be owned by Coca-Cola.

Cadbury is anxious to sell its bottling operations in order to concentrate on making soft drinks and to raise funds to pay the debts it incurred last year in buying Dr Pepper cola.

In June, Cadbury Schweppes announced it intended to sell its part of CCSB, which bottles, distributes and markets beverages in the UK. The Commission began a preliminary investigation on 9 August, which was followed by the second stage on 13 September. Under the Union's merger regulation, the Commission has four months to examine the impact of the proposed acquisition before approving or rejecting the sale.

“It is a major deal and the Commission wants to give it due and proper consideration. Everything is in good order, it is just a question of waiting for the Commission,” said McCabe.