Coke eyes $3.5b Glaceau bid

BANGALORE/NEW DELHI: Some complex corporate manoeuvring could be on the anvil featuring Tata Tea and the Coca-Cola Company, the world’s largest beverage maker. This follows a possible Coca-Cola bid for Energy Brands, the makers of Glaceau wellness drinks, in which Tata Tea holds a 30% stake. Tata Tea may respond by taking a larger role in the US company. Investment banking sources said the Tatas were unlikely to cash out by booking profit in the wake of a Coke bid, as it considers Glaceau to be a strategic play.

International media reports have speculated on a possible Coca-Cola bid estimated at around $3.5 billion landing before the end of the month. This is a whopping 40% premium on Tata Tea’s $2.2-billion valuation of the US company, when it picked up a 30% stake for $677 million in August last year. The 30% is jointly held by Tata Sons and Tata Tea.

‘‘There could be a possibility of the Tatas hiking their stake. They already have the option to take it up to 40% and could look at buying more, but below 50%,’‘ a banking source told ET. When contacted, a Tata Group spokesperson said the company would not wish to comment on speculation. A Coca-Cola spokesperson in India declined to comment. Glaceau is a maker of enhanced water, which is regarded as a health beverage in the US. Tata Tea is India’s largest domestic tea producer.

Multiple sources said the Tatas were likely to protect their current minority interest in the target company, and could press for an additional stake. However, the interesting point here could be the possible response of Mr Darius Bikoff, Glaceau’s founder CEO, to a potential bid from Coca-Cola. Sources said that Glaceau could touch $4 billion in enterprise valuation. While US media reports said Coca-Cola could mount a bid for a complete or partial takeover of Glaceau, a section of them speculated on Coke offering to join forces with the Tatas.

This could also see Coke developing a broad-based alliance with the Tata Group covering its Indian operations as well. Tata Tea could emerge as a potential bottling ally of Coca-Cola’s domestic operations, the reports said.

However, it is possible that Glaceau’s founder could thwart a bid from Coca-Cola given that the he did not opt for the Atlanta-based behemoth when it bid last year when the Tatas bought their stake. Coca-Cola’s interest in Glaceau is not surprising as Glaceau is one of the fastest growing entities in the US beverage market, reporting 100% annual growth in recent years.

Going forward, Glaceau has projected continuation of robust growth and is seen targeting an IPO by 2010-11 when it hopes to attract a $10-billion valuation. This also further strengthens the theory that Mr Bikoff is unlikely to give in to Coke this time as well, and may let the Tatas strengthen their position in the company.