Glenboden M & A Originations

Unwinding of JV between Nestle and Coke frees both groups to make acquisitions in RTD tea and coffee

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Origination Status agreement reached on re-focusing of joint-venture in April 2007
Asset Beverage Partners Worldwide (BPW), 50:50 JV between Coca-Cola and Nestle in RTD drinks
Buyer The Coca-Cola Company (USA), as distributor and marketer
Seller Nestle Group (Switzerland), as product provider and innovator
Buyer Rationale Coca-Cola’s independent expansion in RTD in USA and Japan
Seller Rationale Nestle modelling BPW on CPW, its breakfast cereals JV with General Mills
NBs re-focusing made in response to Coke’s acquisition of Matte Leao, leading RTD player in Brazil
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BPW was created in 2001, as an attempt to combine Nestle’s life science and R&D capability with Coke’s marketing and distribution strengths, in the ready-to-drink tea and coffee categories worldwide. The problem with joint-ventures with such a broad mandate, like ‘worldwide’, is that they can place too many constraints on the two parties, and eventually start to come apart at the seams. It looks like BPW is no exception, thanks to problems with the Enviga launch and, moreover, Coke’s independent activity in the RTD category in the US, Japan and now Brazil. That’s good news for M&A, since Coke will need to acquire new technologies and market positions, in various key geographies.

The most high-profile child of th BPW union was the Enviga RTD green tea brand, launched in 2006 in the US, which has suffered criticism over its fat-burning claims. Enviga is a Nestea brand, with Nestle driving the innovation side, but Coke’s marketing function has been in the front line over the claims.

If this wasn’t sufficient grounds for divorce, Coke’s independent push into RTD tea brands, a cornerstone of it’s strategy to expand beyond carbonated soft drinks, has developed too much momentum for BPW to remain whole.

At the beginning of 2007, Coke bought the new-generation wellness player Fuze Beverage in the US, whose portfolio includes green tea products. So, the US market has had to be taken away from BPW’s remit, since Fuze presents an obvious conflict of interest for Coke.

If that wasn’t enough, Japan has also been excluded, which suggests that Coke is planning an RTD tea acquisition there also.

What seems to have been the final straw, to cause this re-focusing agreement for BPW. A few days before this agreement was announced, Coke had announced that Coca Cola Brasil acquired Matte Leao, Brazil’s leading RTD tea company with a 46% market share. Nestea has 24% share of that same market, so the two giants will now be competing head on there.

To cap it all, Pepsico quickly protested against the Matte deal, on the grounds that BPW means Coke and Nestle will have a duopoly in that market.

This all demonstrates to Nestle that BPW won’t be as successful as its role model, Cereal Partners Worldwide. CPW is a joint-venture formed between the group and General Mills back in 1990, to cover all breakfast cereal markets outside north America (80 countries).

Breakfast cereals however are a relatively new category; in many of these markets CPW had no incumbent acquisition target to tempt either of its partners. RTD tea, in contrast, is a category with strong local brands in many countries - a legacy of the long history of tea drinking and the ease with which a leaf tea packer and distributor can diversify into RTD.

That's good news for M&A activity in RTD, with Coke as the buyer, around the world.

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