For Glaceau founder Darius Bikoff, the turning point in the sale of his upstart beverage business came during a March meeting with Coke in his Whitestone, N.Y., office.
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The entrepreneur recalls that the two powerful Coca-Cola executives, whom he met for the first time, made an immediate impression as they laid out their pitch.
“They saw even more potential for Glaceau and Vitaminwater than I had even dreamed of,” he said.
Coke attached a dollar amount to that potential Friday, announcing it will pay $4.1 billion for a company that posted $355 million in sales last year.
The deal, negotiated by Coca-Cola President Muhtar Kent and Coke North America chief Sandy Douglas, is the soft-drink company’s largest acquisition.
Coke said the premium price was justified for a company that has become a rising star in the beverage industry even though, by Bikoff’s own admission, Glaceau hasn’t “scratched the surface” of the competitive U.S. market.
Also known as Energy Brands, Glaceau makes flavored vitamin-enhanced drinks, fruit-flavored waters and energy drinks under the names Vitaminwater, Smartwater, Fruitwater and Vitaminenergy.
The drink’s primary competitors include Pepsi’s Propel Fitness Water and SoBe Lifewater.
The all-cash purchase will give Coca-Cola its best chance yet to draw closer to Pepsi’s dominant market share when it comes to non-carbonated beverages, led by Gatorade, which was part of Pepsi’s $13.8 billion purchase of Chicago-based Quaker Oats in 2001 after Coke passed on the company.
Beverage industry analysts say Glaceau, though far smaller and much less developed than Gatorade, gives Coke a solid platform on which to build a stronger non-carbonated drink portfolio without having to start from scratch.
Bikoff said Glaceau gets access to Coca-Cola’s massive distribution network and marketing muscle in North America and abroad.
“We had to build this brand with a lot of less at the beginning — less availability, less distribution, less marketing, less money, less manpower,” Bikoff said during an interview Friday with The Atlanta Journal-Constitution. “Now it’s going to be all about more.”
While analysts and industry experts generally agreed Coke’s purchase of Glaceau was a good strategic move, JPMorgan analyst John Faucher said Coke “will need to prove it is beneficial to its shareholders to spend $4 billion for the latest ‘hot’ beverage brand.”
Marion Glover, who has helped buy and sell beverage bottlers for 20 years, agreed the deal was a “neutral” for shareholders, but he called it a positive for Coke.
“Coke is showing it can go out and capture these new stars,” he said. “It’s like capturing the ‘American Idol.’ It is a really good brand, good tasting, and it will give their bottlers a good boost.”
The deal includes $1.2 billion that will be paid to India-based Tata Tea, maker of Tetley Tea, for its 30 percent stake in Glaceau. Tata bought the stake last summer for $677 million.
Coke will close the purchase of Glaceau’s 70 percent stake in mid-June, a Coke executive said during a conference call with investors Friday.
Coke said it will run Glaceau as a standalone business.