DBRS Comments on Rejection of Coke’s Juice Company Bid

DBRS notes that the AA (low)/R-1 (middle) ratings of The Coca-Cola Company (Coke or the Company) are unaffected by today’s announcement that the Chinese government has declined approval of Coke’s proposed acquisition of China Huiyuan Juice Group Limited (Huiyuan).

In September 2008, Coke announced its intention to purchase Huiyuan for approximately $2.4 billion. The acquisition of Huiyuan, the market leader in the Chinese pure-juice segment would have boosted Coke’s share in this high-growth region. Despite the corresponding increase in expected leverage, DBRS confirmed Coke’s ratings, as the transaction fit the Company’s strategy of expanding in higher-growth emerging markets and developing Coke’s non-carbonated beverage portfolio.

China’s Ministry of Commerce decision to disallow the transaction was based on a newly enacted anti-monopoly law and the view that Coke’s acquisition of Huiyuan would be detrimental to competition. The ministry said that even unspecified changes to the deal made by Coke were insufficient to alleviate the ministry’s concerns. Coke is not expected to appeal the decision.

While today’s announcement will not provide Coke with the anticipated boost in its Chinese non-carbonated beverage volumes, the Company does remain well positioned to continue growing organically in the region. The Company continues to invest heavily in China – most recently announcing a further three-year $2.0 billion investment in distribution and infrastructure in the country. DBRS notes that the acquisition was also not expected to add materially to earnings in the near term.

DBRS views the announcement as modestly positive for the Company’s credit profile, given the elimination of significant acquisition-related debt. DBRS expects the Company will continue with share repurchase activity now that the planned transaction has been terminated. DBRS expects, however, that share repurchases and capital spending will be conducted at a level that will keep debt fairly stable year over year. Assuming no other significant acquisitions, DBRS believes that this will help maintain leverage metrics at a level more comfortable for the rating.

Notes:
All figures are in U.S. dollars unless otherwise noted.

The applicable methodology is Rating Consumer Products, which can be found on our website under Methodologies.

This is a Corporate rating.