P&G, Coke combine to create beverage giant

Two of the world's biggest FMCG companies made a surprise announcement that will lead to the creation of a new enterprise focussing on developing and marketing innovative juice-based beverages and snacks. The joint venture is between soft drinks giant, The Coca-Cola Company, owner of the world's most valued brand, Coca Cola, and consumer products group, Procter & Gamble (P&G) which, apart from selling more than 300 brands, also has the most patents on food and beverage technology.

P&G owns more than 3,000 patents for foods and beverages and applies for an average of 300 new patents in food and beverage each year. It also has a wide range of patents in packaging and preservative systems that allow it to deliver products with smaller amounts of preservatives yet longer shelf life in much lighter and easy-to-open bottles.

The joint venture, to be owned equally by both companies, will bring in some of the best brands owned by both companies, with a view to leveraging the complementary strengths of the two companies in the creation of greater value for these brands. It will combine Coca Cola's worldwide distribution network – claimed to be the world's largest network – and its merchandising and marketing skills with P&G's renowned research and development capabilities in food technology.

The new entity will be headed by Donald Short, a Coke veteran, who also had a great innings in India as he set up Coke's return to the country after a long absence. The new company's board of directors will have four members, two from each company. With 15 manufacturing facilities and over 6,000 employees, the new company will manage the a range of great brands that will include Minute Maid, Hi-C, Five-Alive, Fruitopia, Cappy, Kapo, Sonfil and Qoo (from the Coke stable) and Pringles, Sunny Delight and Punica beverages (from the P&G stable).

The senior management of both companies see great synergies in the creation of the new entity, which is expected to begin its first year with revenues of over $4 billion and is expected to touch over $200 million by 2005. These synergies are expected to create $1.5-2 billion in increased value for the shareholders of both companies. The deal, which will face an acid test with regulatory authorities, is likely to pose a big challenge to Coke's rival, PepsiCo, which currently dominates the market for juices and salty snacks with its Tropicana juice and Frito-Lay brand of snacks.

Analysts on Wall Street have, however, received this news with great scepticism. According to some, Coke is taking a great risk in contributing half its profit stream from its growing juice business to share in the profits of a venture that will have two declining brands from P&G – Pringles and Sunny Delight.