Coca-Cola (KO) and its largest bottler, Coca-Cola Enterprises (CCE), are planning a complicated merger. CCE's current shareholders will receive a $10 cash payment per share in exchange for new shares in the part of CCE that will retain control of its European bottling operations. If CCE's price remains near $25, as it has in recent days, the $10 payment will result in an ex-dividend adjusted share price around $15 for the "new" CCE after the transaction closes. Shareholders should find this acceptable provided CCE can successfully institute its planned $1B share repurchase and proposed $0.50 annual dividend (an increase from the current $0.36 dividend). Note that the transaction's announcement qualifies this plan by making it subject to funding from continuing operations.
Furthermore, KO's assumption of $8.9B worth of CCE debt and $0.6B in unfunded pension obligations relieves CCE of a significant financial burden. Subtracting this consideration from CCE's enterprise value of $20.68B leaves the new CCE (before new debt issuance) with a notional enterprise value of $11.18B, a discount to its present market cap of over $12B. KO probably believes structuring the transaction this way is a bargain compared to an outright takeover of CCE followed by a separate sale of its European business units. This looks like a very smart, efficient deal for both KO and CCE shareholders.
Nota bene: Anthony J. Alfidi has no position in KO or CCE at the time this post was published.
