(Reuters) – SABMiller and Coca-Cola will combine the operations which mix, bottle and distribute their soft drinks in Africa, creating a group with sales of $2.9 billion and ambitions to corner a fast-growing market.
Coca-Cola Beverages Africa will be the continent’s largest soft drinks bottler, accounting for 40 percent of all Coke volumes sold in Africa. It will serve 12 southern and eastern African countries, including South Africa.
The broader deal — which will also hand Coca-Cola an extra 20 brands, including Appletiser — will extend both firms’ distribution networks and presence.
It comes as brewers like SABMiller bulk up on low-margin fizzy drinks in emerging markets, where soft drinks are outpacing more lucrative sales of beer. For SABMiller, bottling soft drinks may be less profitable than packaging beer, but it is also a cheaper way to grow.
“The idea behind the merger is to expand quicker, and over time we will look for more bottlers to acquire to grow the business further,” Mark Bowman, Africa head of SABMiller.
“The capital we would have spent today to expand our soft drinks business in Africa is probably half what we expect to spend in the future.”
Coke and SABMiller did not say how much they expected to save with the deal.
Households in Africa’s growing economies are finding themselves with more disposable income, which they are spending on what previously would have been considered luxuries.
Africa’s consumer spending on shopping, banking, telecoms and tourism could grow to $978 billion by 2020, from $570 billion in 2010, according to McKinsey.
While many U.S. and European companies are taking a serious look at Africa, both Coke and SABMiller are veterans. SABMiller was founded as South African Breweries, while Coke has built a distribution network that allows its drinks to reach tiny tuckshops in far-flung townships.
The all-equity deal pulls together SABMiller, Coke and Coke’s South African bottling partner, the Gutsche family. SABMiller will own 57 percent of the group, Coke will hold 11.3 percent and the rest will be in the hands of the Gutsches.
As part of the deal, Coke will acquire SABMiller’s sparkling soft drink Appletiser brands globally, and buy or be licensed for a further 19 non-alcoholic names in Africa and Latin America for about $260 million.
SABMiller will retain its non-alcoholic malt beverages in Africa and Latin America and also keep Coke’s franchises in El Salvador and Honduras.
Coca-Cola Beverages Africa will have more than 30 bottling plants when the deal is completed.
Nomura and NLA advised Coca-Cola Sabco and Rothschild advised SAB Miller on the deal.
By Tiisetso Motsoeneng and Helen Nyambura-Mwaura (Additional reporting by Paul Sandle in LONDON; Editing by Vincent Baby and Clara Ferreira Marques)