Aboitiz Equity Ventures Inc. (AEV) said it will use the proceeds of its planned P14.75 -billion bond sale this quarter to partly fund the acquisition of Coca-cola Beverage Philippines Inc. (CCBP), the local operating arm of food giant and New York-listed The Coca-cola Company (TCCC).
The company told Malaya Business Insight the bonds will be complemented by cash generated from the recent sale of a portion of its stake in its power business and cash generated from operation.
At an acquisition cost of $1.8 billion of CCBP, AEV will have to shell out $720 million (P40 billion) to cover its 40 percent share of the acquisition, which the Aboitiz-led conglomerate is initiating with Europe-based Coca-Cola Europacific Partners PLC (CCEP).
AEV intends to fund its acquisition with an optimal mix of debt and cash.
AEV recently announced its plan to offer up to P17.45-billion worth of fixed-retail bonds by the third quarter of this year. It also has cash generated from its recent sale of a portion of its stake in its power business as well as cash generated from operations.
Opinions are mixed on the impact of the acquisition in AEV’s bottomline.
Luis Limlingan, managing director at Regina Capital and Development Corp., said the acquisition would be a “great opportunity” for AEV in its effort to diversify since Coca Cola “would be a good addition to its food segment.”
“However, the main challenge lies on high taxation on sugar,” he said.
Abacus Securities Corp. said the acquisition may prove to be expensive for the company moving forward.
“The reason why CCBPI’s ownership has changed hands many times over the past two decades is an indication that it’s not exactly a great asset. Of course, that’s in the past but Coca-Cola US reported that in its latest quarter that volumes in the Philippines declined,” it said, noting that the food and beverage firm’s volume in the past six year only grew by a compounded 2.2 percent.
“This was affected by the sugar tax in 2018 but this is barely above the population growth rate,” it said.
“Moreover, CCEP wrote in its own press release that CCBPI generated a PBT (profit before tax) of $90 million last year. On an after-tax basis, the $1.8 billion valuation would imply a P/E of about 27x. Even if net profit grows by 20 percent through 2024, it would still be pricey at 22x. This gives an earnings yield of 4.5 percent percent which is likely lower than AEV’s cost of money,” it added.
On Wednesday, AEV said it has partnered with CCEP to enter into a non-binding letter of intent with TCCC for the acquisition CCBP at an enterprise value of $1.8 billion on a debt-free cash-free basis.
AEV said CCEP will own the controlling stake.
AEV said the acquisition, if completed, “would build on AEV’s portfolio diversification strategy to enter the branded consumer goods space and on CCEP’s successful expansion into the Asia-Pacific region via its acquisition of Coca-Cola Amatil in 2021.”
“AEV would be well positioned to support CCBP’s growth ambition given the synergies that can be generated from AEV’s other businesses,” it said.
CCEP said the acquisition is further step in creating “a more diverse footprint within its existing API (Australia, Pacific, and Indonesia) business segment and support Indonesia’s transformation journey.
“It is aligned with CCEP’s aim of driving sustainable and stronger growth through diversification and scale, and underpins the company’s strategic mid-term objectives,” it said.
Once completed, the two companies will gain a foothold in an operation that has a supply chain footprint of 73 production lines and 19 plants, that enjoys a strong customer base, servicing more than 1 million outlets.
The acquisition is subject to a number of conditions, including satisfactory completion of confirmatory due diligence approval of the acquisition by AEV and CCEP’s respective boards, and the signing of definitive agreements.
