Executives at the Coca-Cola Company are apparently having second thoughts over entering a joint venture with Procter & Gamble, says influential Sanford C Bernstein analyst Bill Pecoriello.
After speaking with Coke officials, Pecoriello revealed they were increasingly anxious about exchanging half the profits from their fast-growing fruit-juice drinks for a share of P&G’s less promising drinks and snacks brands.
Unveiled in February, the alliance involved transferring Coke drinks such as the Minute Maid products, Hi-C and Fruitopia into a jointly-owned company with P&G brands Sunny Delight and Pringles. One of the goals of the venture was to meld Coke’s distribution network with P&G’s extensive research and development operations [WAMN: 21-Feb-01].
According to Pecoriello, however, Minute Maid sales jumped over 10% in Q1 2001, while sales of Sunny Delight fell by a similar margin, hence the cold feet at Coke.
“It’s not impossible for the deal to be completely scrapped,” warned Pecoriello, “and it’s highly likely that the original terms will be modified.”
Coke executives have pointed to less tangible advantages of the deal, such as access to P&G’s research arm – the duo are already testing a new drink dubbed Elations, designed to ease the aches and pains of baby boomers. However, such assets will not have an immediate financial impact, hindering Coke’s aggressive growth targets for this year.
The soft drinks mammoth did not confirm or deny Pecoriello’s claims. “We’re working to conclude a mutually acceptable deal,” commented Coke’s Dirk Vande Beek. “We will announce terms when they are final.”
News source: New York Times