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Coca-Cola buys Glaceau to fill gap in portfolio

Directors of the Coca-Cola Co on Thursday night approved the purchase of Glaceau, the maker of Vitaminwater, for US$4.2 billion in cash and Coke stock, according to a person involved in the negotiations.

The deal was scheduled to be announced yesterday, the person involved said. Coke executives declined to comment on Thursday night.

The acquisition has been expected for weeks, as Coke pursued Glaceau, which is also known as Energy Brands, to upgrade its portfolio of noncarbonated beverages, the sales of which have been growing much faster than those of soda in the US in recent years.

While the price tag is substantial for a company with earnings last year of about US$350 million, analysts said the cost of not doing the deal, given Coke's relatively weak position in noncarbonated beverages, could also have been high.

The deal may also exorcise some ghosts in Coke's past.

For the last decade or so, Coke, which has a 43 percent share of the soda market in the US, compared with 31 percent for the rival PepsiCo, has lagged in introducing noncarbonated beverages.

Coke was late in introducing bottled water to the market. And in 2000, Coke's chief executive signed a deal to buy Quaker Oats, which included Gatorade, but the board turned him down.

Quaker was then swept up by PepsiCo.

This year, PepsiCo's share of the noncarbonated beverage industry in the US -- which includes bottled water, sports drinks and juice -- was 50 percent. Coke's market share was 23 percent, according to the trade publication Beverage Digest, which first reported the negotiations last month.

William Pecoriello, an analyst with Morgan Stanley, called the acquisition, a "potential game changer" in the market for noncarbonated drinks.

"It would fill a major gap in its noncarb portfolio," Pecoriello said last week in a note to investors.

Glaceau also makes Fruitwater, an energy drink called Vitaminenergy and Smartwater, which contains electrolytes. Pecoriello said the sale of Glaceau's products could be expanded overseas.

Glaceau's Web site says: "Welcome to the Center for Responsible Hydration."

The company was founded in 1996 by J. Darius Bikoff, who remains chief executive. He could not be located for comment.

Glaceau is based in Whitestone, Queens, in New York City.

The company sold 77 million 192-ounce cases last year, a standard industry measure, Beverage Digest said.

That was a 103 percent increase over the previous year.

By contrast, Coca-Cola sold 5.5 billion cases in the US alone.
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