Bottling it

CCE: The new Coca-Cola Enterprises may look like an afterthought. The European soft drink bottler will be the large rump -- around a third based on 2009 revenues -- left over after Coca-Cola's integration of CCE's North American operations. But it is a business with possibilities - and one big limitation.

The new CCE will not emerge until the fourth quarter of 2010, assuming the necessary shareholder approval come through. Although there will not be a share offering, the company and its advisors are already creating an investment story.

It goes like this. The bottler will get operational gains from integrating and growing its existing European operations with several it is picking up from Coke. Then there is organic growth. Soft drinks, especially the healthy sort, are still a growth industry in Europe and CCE will hope to increase its already dominant market share. Finally, there are acquisitions. The small Norwegian and Swedish businesses come with the deal, but will only add 10 percent to pro forma 2009 revenue of $7.3 billion. After 18 months, CCE will have an option to buy the German business, which would add another 30 per cent or so, at a fair price. That might add more to volume than to profit or growth.

For substantial growth, bigger deals will be required. The problem is that most promising markets in the region are controlled by family-owned enterprises, most notably Coca-Cola Hellenic Bottling and Coca-Cola Icecek.

Still, even without tremendous growth prospects, CCE will deserve a solid valuation. An enterprise value of 8 times EBITDA, between that of mature UK's Britvic and faster growing Coca-Cola Hellenic, would give the company an enterprise value of $9.6 billion, based on 2009 pro-forma EBITDA of around $1.2 billion. That would give it an equity value of $6 billion, compared to Coca-Cola Hellenic's $10 billion.

New-York listed CCE's talk of a possible secondary listing in London could give it an acquisition currency. But with the obvious sellers keen to hang on to their lucrative Coke franchises, CCE could find any ambitions for a larger European empire thwarted.