HK's Swire Pacific to sell U.S. Coca-Cola business for US$3.9bn

Hong Kong-based conglomerate Swire Pacific has agreed on a conditional sale of Swire Coca-Cola, USA to JS&S, a wholly-owned subsidiary of John Swire & Sons, for the cash consideration of US$3.9bn. The deal’s value was about 12.4 times the unit’s earnings before interest, taxes, depreciation and amortisation of about HK$2.46 billion in 2022.

According to an official document on the Hong Kong stock exchange, the transaction is conditional upon the approval of independent shareholders. Upon completion of the sale, the company proposes to distribute to its shareholders a substantial portion of the net proceeds from the transaction in the form of a special dividend of approximately HK$11.7bn, representing approximately 50% of the gain on disposal, which would be larger than the sum of the dividends paid over the last three financial years.

The transaction enables the company to crystalise the value of the target group at an attractive valuation significantly above its book value. The company is expected to record a gain on disposal of approximately HK$22,800m from its sale of the sale shares by reference to the carrying value HK$7,600m of the sale shares as at 31 May 2023.

Furthermore, this move also provides the company with significant net proceeds, which will materially reduce the company’s net debt, further strengthen its balance sheet, and enhance its financial flexibility, according to the document. It is consistent with the company’s strategic focus on Greater China and South East Asia; and provides the company with capital to fund long-term investments with strong growth potential in its core divisions as well as new growth areas.

Swire Coca-Cola, Swire Coca-Cola, USA and JS&SL will enter into a management services agreement, which will enable the beverages division of Swire to continue to strengthen its global franchise relationship with The Coca-Cola Company covering a sizeable franchise population of 882 million across four countries and provide an additional income stream to SCCL via the management fee.

Commenting on the conditional sale, Guy Bradley, chairman of Swire Pacific, said, "This transaction represents an attractive valuation that results in a gain of approximately HK$22.8 billion on disposal, the biggest profit ever realised by Swire Pacific. This allows us to provide immediate value to our shareholders by returning approximately half of this gain by way of a special dividend. It is also consistent with our strategic focus on Greater China and South East Asia, where we remain committed to executing our exciting investment pipeline."

Currently, Swire Coca-Cola, USA produces, sells and distributes Coca-Cola and other beverages in 13 states across the western United States, including parts of Arizona, California, Colorado, Idaho, Kansas, Nebraska, Nevada, New Mexico, Oregon, South Dakota, Utah, Washington, and Wyoming, with a franchise population of approximately 30 million.

Back in July last year, Swire Coca-Cola has agreed to acquire Coca-Cola subsidiaries with bottling businesses in Vietnam and Cambodia. The transactions were Swire Coca-Cola's first investments in South East Asia, giving Swire Coca-Cola a leading position in one of the world’s fastest growing beverage markets. 

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