MBAF 624: Mergers and Acquisitions Acquisition Team Project: Business Plan

MBAF 624: Mergers and Acquisitions
Acquisition Team Project
Task
Business Plan
Company Background
Industry/market definition
External analysis (porter 5 forces)
Opportunities/threats
Internal Analysis
Business mission/vision statement
Quantified strategic objectives
Business strategy
Implementation strategy
Acquirers business plan valuation
Acquisition Plan
Plan objectives
Timetable
Resource/capability evaluation
Management preferences
Search plan
Negotiation strategy
Purchase (offer) price estimate
Financing plan
Integration plan
Executive Summary
Conclusion
Model Filling/Formatting
Compiling parts and Editing
Proof Read
Responsible
Mr. A
Mr. A
Mr. B
Mr. B
Mr. C
Mr. D
Mr. E
Mr. A
Mr. B
Mr. C
Mr. A
Mr. D
Mr. E
Mr. B
Mr. E
Mr. D
Mr. C
Mr. E
Mr. A
Mr. B
Mr. D/Mr. C
Mr. C
Mr. C/Mr. D
The Whole team
PAGE
Table of Content
I.
Executive Summary ............................................................................................................... 3
II. The Coca-Cola Business Plan ................................................................................................ 6

A.
Company Background ................................................................................................................. 6
B.
Industry/Market Definition ......................................................................................................... 7
C.
External Analysis: Applying Porters 5 Forces Model ............................................................. 9
D.
Opportunities .............................................................................................................................. 15
E.
Threats ........................................................................................................................................ 18
F.
Internal Analysis ........................................................................................................................ 19
G.
Mission, Vision, and Values ....................................................................................................... 23
H.
Quantified Strategic Objectives ................................................................................................ 24
I.
Business Strategy ........................................................................................................................ 28
J.
Implementation Strategy ........................................................................................................... 30
K.
TCCCs Business Plan Valuation ............................................................................................. 32
III. Acquisition Plan.................................................................................................................... 37

A.
Plan objectives ............................................................................................................................ 37
B.
Timetable .................................................................................................................................... 37
C.
Resource/capability evaluation ................................................................................................. 37
D.
Management Preferences .......................................................................................................... 40
E.
Search plan ................................................................................................................................. 43
F.
Negotiation Strategy................................................................................................................... 48
G.
Purchase (offer) price estimate ................................................................................................. 52
H.
Financing plan ............................................................................................................................ 58
I.
Integration plan .......................................................................................................................... 60
IV. Conclusion ............................................................................................................................. 62

V. Appendix ............................................................................................................................... 64
PAGE
I. Executive Summary
Coca-Cola is currently the most popular and biggest-selling soft drink in the history. Its
producer, The Coca-Cola Company (TCCC) is also currently the number one soft drink company
in the world. TCCC has sold soft drinks more than double what has Pepsi sold in 2011. Boasting
more than 500 brands, robust distribution network, and global scale of operation, TCCC is
enjoying a relatively comfortable position in the soft drink industry. However, TCCCs heavy
dependence on carbonates, which represented 71% of its total off trade volume sales in 2011, can
expose them to significant risk in the medium term. This is especially true in the US, where
carbonates sales are expected to experience steady decline. Externally, the biggest threat comes
from intense competition between existing players, such as Danone, Nestle, and Pepsi Co. Most
of the big players in this industry are big companies with big brand portfolio who compete with
TCCC on various markets around the world.
There are a lot of opportunities, both in the developed market, such as US, and in the
developing market such as Indonesia or China, that TCCC can tap into. In US, the energy drink
segment has grown significantly over the past 10 years and is still expected to grow steadily.
TCCC is still currently weak in this subcategory. Its FullThrottle product only has 1.4 percent
share of the market in 2012.
Over the years TCCC has adopted a business strategy that both leverage its economies of
scale and large product portfolio. Its size, financial capability and branding power has allowed it
to adopt cost leadership, product differentiation, and niche positioning at the same time in
different segments of the market. Under the current leadership of Muhtar Kent, TCCC has a
vision to double its size by 2020. TCCC also aims to achieve a 7 percent year to year revenue
growth. TCCC is aware of its heavy reliance on carbonates and states that diversification into the
non-carbonates such that carbonates only account for 50 percent of its sales as one of its main
objectives. To achieve those business strategy and objectives, TCCC can choose to utilize inhouse capabilities, partnership agreement, or acquisitions. After factoring the fact that
competition is very intense and the market are changing rapidly, it is recommended that TCCC
should focus on acquisitions, especially in the developed market. TCCC currently has
approximately $9 billion of excess cash that can be used in acquisitions.
PAGE
After considering several companies, such as Arizona Beverage, Red Bull, Monster,
Rock Star, and Slow Cow, Monster is deemed as the most suitable acquisition target since it is a
leading energy drinks producers with significant revenue and is based in the US. Furthermore,
Monster offers an opportunity to consolidate the current and failing Coca-Cola energy drinks
into a single, more successful, brand. Management prefers to have a friendly takeover as a more
maximal amount of synergy can thus be obtained. Over the last ten years, TCCC has also tended
to acquire smaller companies. Most of the companies were acquired for less than $200 million.
This does not mean that management wont approve bigger acquisition. In fact, in 2007, TCCC
acquired Glaceau Vitaminwater for $4.2 billion. In 2010, TCCC also acquired Coca-Cola
Enterprises (CCE) North America operation for more than $12 billion. If such big acquisitions
align with TCCC strategic objectives, then it is likely to be supported. TCCC has tended to keep
the original management from the acquired company intact. This aligns well with the purpose of
acquiring Monster and using it as a master brand for TCCCs energy drinks brand both locally in
US, and internationally.
Based on several financial analysis performed on the financial models, it is estimated that
to acquire Monster, TCCC has to offer $13 billion to Monster shareholder, which represents a 32
percent premium over Monsters current price. The form of payment for this acquisition will
involve $6.5 billion of cash, $3.25 billion of stock and $3.25 billion of debt. The use of cash is
justified by TCCCs significant cash accounts. The use of stock is desired since TCCCs stock is
currently overvalued. From the perspective of Monsters shareholders, accepting stocks give
them the ability to defer a portion of the tax payment. Utilizing debt to finance another $3 billion
of the cash requirement makes sense as TCCC currently has a very good credit rating which
allows them to get low interest rates and realize a greater return on investment. On top of that,
Monster currently has no significant long term debt. The proposed acquisition vehicle is a CCorp holding company, which insulates TCCC from Monster liabilities, in particular the effect of
its lawsuits.
The post-closing organization will be a wholly owned subsidiary that continues to operate
as a C-Corp. Despite the obvious benefit of full control and insulation from liabilities, keeping
Monster as a wholly owned sub as opposed to an internal division provides other significant
benefits. First, subsidiaries allow for the decentralized management, where the sub has its own
management team. This is important because Monsters management team has been successful
PAGE
in bringing Monster from a start-up company to a leading brand in the energy drink segment.
Secondly, TCCC will be able to benefit from any goodwill and brand recognition attached to
Monsters name that it would not otherwise reap if Monster lost its corporate identity as a
corporate or divisional structure. The acquisition is expected to bring TCCCs EPS to $1.72
whereas without the acquisition TCCCs EPS will be $1.41 in 2016.
PAGE
The Coca-Cola Business Plan

A. Company Background
1. Origins
The Coca Cola Company (TCCC) is the most popular and biggest-selling soft drink in
history, as well as the best-known product in the world.1 Created in 1886 in Atlanta, Georgia, by
Dr. John S. Pemberton, Coca-Cola was first offered as a fountain beverage at Jacob's Pharmacy
by mixing Coca-Cola syrup with carbonated water. It was intended as a patent medicine to cure
headaches and hangovers. Coca-Cola was patented in 1887, registered as a trademark in 1893
and was sold in every state and territory in the U.S. by 1895. In 1899, TCCC began franchised
bottling operations in the United States. On May 8, 2011, TCCC celebrated its 125th
anniversary.
2. TCCC Business Operations
TCCC produces concentrate, which is then sold to licensed Coca-Cola bottlers
throughout the world. The bottlers, who hold territorially exclusive contracts with the company,
produce finished product in cans and bottles from the concentrate in combination with filtered
water and sweeteners. The bottlers then sell, distribute and merchandise Coca-Cola to retail
stores and vending machines. Such bottlers include Coca-Cola Enterprises (owned by TCCC),
which is the largest single Coca-Cola bottler in North America and Western Europe. TCCC also
sells concentrate for soda fountains to major restaurants and food service distributors.
The following table sets forth the percentage of total net operating revenues related to
concentrate operations and finished products operations: 2
3. Patents, Copyrights, Trade Secrets and Trademarks

TCCCs sparkling beverage and other beverages formulas are among the most important
trade secrets of the company. TCCC owns numerous patents, copyrights and trade secrets, as
well as substantial know-how and technology. This technology generally relates to the
1
2
"Brand Fact Sheet". Coca-Cola official website (www. coca-colacompany.com). October 24, 2012
TCCC 2011 Annual Report
PAGE
companys products and the processes for its production; the packages used for its products; the
design and operation of various processes and equipment used in the business; and certain
quality assurance software.3 Some of the technology is licensed to suppliers and other parties.
4. International Popularity
TCCCs origins may be grounded in the United States, but its popularity has made it truly
universal. Today, TCCCs products are in virtually every part of the world.4
In 2011, TCCC used 72 functional
currencies in addition to the U.S.
dollar and derived $27.8 billion of
net
operating
operations
revenues
outside
the
from
United
States.
Coca-Colas
operating
income contribution by operating

segment on a percentage basis is as
follows:
B. Industry/Market Definition
TCCC competes in the nonalcoholic beverage segment of the commercial beverage
industry. Of the approximately 56 billion beverage servings of all types consumed worldwide
every day, beverages bearing trademarks owned by or licensed to TCCC account for more than
1.7 billion.5 The nonalcoholic beverage segment of the commercial beverage industry is highly
competitive, consisting of numerous companies. These include companies, like TCCC, that
3
Id.
Id.
5
Id at 29
4
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compete in multiple geographic areas, as well as businesses that are primarily regional or local in
operation. Competitive products include numerous nonalcoholic sparkling beverages; various
water products, including packaged, flavored and enhanced waters; juices and nectars; fruit
drinks and dilutables (including syrups and powdered drinks); coffees and teas; energy and
sports and other performance-enhancing drinks; functional beverages; and various other
nonalcoholic beverages.6
These competitive beverages are sold to consumers in both Ready-To-Drink (RTD)

and other than ready-to-drink form. In many of the countries in which TCCC does business,
including the United States, PepsiCo, Inc., is one of its primary competitors. Other significant
competitors include, but are not limited to, Nestle , Dr. Pepper Snapple Group, Inc., Groupe
Danone, Kraft Foods Inc. and Unilever. In certain markets, TCCCs competition includes beer
companies. It also competes against numerous regional and local companies and, in some
markets, against retailers that have developed their own store or private label beverage brands.7
The following table summarizes the comparison between TCCC, Dr. Pepper, Snapple
Group, Inc., Nestle, PepsiCo, and the soft drink industry average: 8
Id.
Id.
8
Yahoo! Finance (http://finance.yahoo.com/q/co?s=KO+Competitors)
7
PAGE
As of Nov. 16, 2012
TCCC
Dr. Pepper
163.98B
8.92B
197.10B
105.67B
0.01
-0.00
0.08
-0.05
0.14
47.60B
5.97B
93.06B
65.70B
2.00B
0.60
0.58
0.47
0.52
0.42
13.01B
1.31B
17.32B
12.59B
391.35M
0.23
0.18
0.16
0.15
0.12
8.80B
625.00M
10.61B
5.92B
N/A
EPS (ttm)
1.91
2.92
3.32
3.76
0.52
P/E (ttm)
19.11
14.66
18.66
18.19
21.62
PEG (5 yr expected)
2.22
1.97
3.26
3.95
1.97
P/S (ttm)
3.43
1.48
2.13
1.61
1.49
Market Cap
Qtrly Rev Growth (yoy)
Revenue (ttm)
Gross Margin (ttm)
EBITDA (ttm)
Operating Margin (ttm)
Net Income (ttm)
Nestle
Pepsi
Soft-Drink
Industry
3.32B Avg.
Competitive factors impacting companies in the industry include, but are not limited to,
pricing, advertising, sales promotion programs, product innovation, increased efficiency in
production techniques, the introduction of new packaging, new vending and dispensing
equipment, and brand and trademark development and protection.9
TCCCs competitive strengths include its leading brands with a high level of consumer
acceptance; a worldwide network of bottlers and distributors of its products; sophisticated
marketing capabilities; and a talented group of dedicated associates. TCCCs competitive
challenges include strong competition in all geographic regions and, in many countries, a
concentrated retail sector with powerful buyers able to freely choose among company products,
products of competitive beverage suppliers and individual retailers own store or private label
beverage brands.10
C. External Analysis: Applying Porters 5 Forces Model
TCCCs core business is in the soft drink industry. As such, the following Porters 5
Forces analysis will be done on the soft drink industry with the emphasis on TCCCs heavy
reliance on carbonated beverages.

Id. At 9.
10
PAGE
1. Threat of New Entrants

The soft drink industry, in a broad sense, encompasses large categories of products
including: carbonates, bottled water, juices, and RTD teas and coffees. Given the large number
of subcategories in the soft drink industry, the industry has the ability to absorb new entrants
without over-saturation. This does, however, lend itself to an unusually high number of new
entrants. Most mainstream retail stores, such as Ralphs or Wal-Mart, sell soft drinks produced
by multinationals like TCCC and Pepsi. However, specialty retail stores, such as Whole Foods,
focus on selling organic or healthy products, and drinks produced by smaller companies.
Each year food and drink exhibitions are a way for soft drink companies to display and
promote their products. Hundreds of soft drink startups flood the exhibitions in an attempt to
gain more exposure.11 The number of startups is very high in this industry because the cost of
starting up a new soft drink company is low at an average of less than $100,000.12 While these
startups could be a potential threat to the big players like TCCC, most of them face big hurdles in
gaining consumer recognition. The startups have a difficult time overcoming the product
portfolio gap. In addition, they cannot compete with respect to advertising. The big players often
spend billions of dollars on advertising to maintain consumers brand loyalty. For example, in
2011, TCCC spent $3 billion in advertising expenses.13 This reflects how big of a role that brand
recognition and loyalty play in the soft drink industry. Start up companies that obviously cant
afford to spend that much in advertising have difficulty gaining consumer recognition.
Relatively low start-up costs also means that most soft drink startups have to compete
head to head with other startups as well. As a result, most of the promising start-up companies
are acquired by big companies. Over the last three years, TCCC had acquired start-ups including
Zico, Innocent, Nidan, and Honest Tea.14 Similarly, Pepsi Co, TCCCs biggest competitor, had
adopted similar acquisition strategy to sustain growth. It had acquired Amacoco and Wimm-BillDann in the last three years. To distribute their products, most soft drink companies, even big
companies such as TCCC, rely on their bottling partners.15 This holds true in the case of start up
11
Natural Products Expo West. 2012 Natural Products Expo West/Engredea Exhibitor List/Directory.
http://www.expowest.com/ew12/public/ExhibitorList.aspx?aeid=398,399&ID=1019663.
12
Breaking Into the Energy Drink Business. Bloomberg BusinessWeek.
http://www.businessweek.com/articles/2012-04-27/breaking-into-the-energy-drink-business.
13
Id. At 9
14
The Coca-Cola Co. In Soft Drinks (World). July 2012. Euromonitor International
15
Id. At 9
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10
companies. The majority of starts up companies have to rely on bottling companies to

manufacture, package, or distribute their product.
Those bottling companies also have contracts with the big companies. This potentially
limits their capacity to produce other beverages.
In addition, startups and new beverages
typically dont have clear sales projection, which might expose the bottling companies to
considerable default or continuity risks. This may make it more difficult for the startups to get a
bottling company to do business with them. Moreover, big soft drink companies, such as TCCC,
usually have majority stakes in their bottlers.16 TCCC owns or holds a majority interest in 97
beverage bottling and canning plants located throughout the world.17 TCCCs strength in bottling
and distribution network allows them to manage the growth of potential competitor brands.18
The threat of new entrants to TCCCs soft drink business can be considered low to
medium. The medium risk stems from the fact that it is relatively easy to get into the soft drink
market, as evidenced by relatively low startup cost and the number of new niche entrants in
recent years. However, looking at TCCCs established position, especially in terms of brand
strength and distribution, most of the new entrants pose minimal threat to TCCC.
2. Threat of Substitute Products or Services
Traditionally, soft drink industry consists mainly of carbonates drinks. Thus, there are
huge number of possible substitute products including water, juices, beers, teas, and coffees.
However, some reports, such as those conducted by Euromonitor International, have begun to
include bottled water, juices, sports drinks, energy drinks, RTD tea, RTD coffee, and Asian
specialty drinks into the soft drink category.19 As a result, the number of substitute that does not
belong in the category or subcategories has shrunkAs a result, the number of substitutes products
has grown. Milks, alcoholic drinks such as beers and wines, and non-RTD or non-bottled coffees
and teas are perhaps the only real substitutes outside the redefined soft drink category. Given the
broad range of the redefined category, the likelihood of consumers switching within the soft
drink category itself increases. Products in soft drink category have fairly low prices, are
consumed within a short period of time, and incur no contractual obligation or commitment to
the consumers. Additionally, most products within the same sub-category are similar to each
16

18
Id
19
Soft Drinks 2010 Trends and Future Directions. April 2011. Euromonitor International
17
PAGE
11
other. Thus, there is virtually no switching cost. Consumers can easily purchase and consume
Coca-Cola on one day and choose to consume DrPepper on another day. Soft drink companies
are aware of this and try to differentiate themselves by creating a strong brand around their
product portfolio. Major soft drink companies spend billions of dollars each year on advertising
and promotions.20 To hedge against the threat of substitute products outside or within the
category itself, most big soft drink companies widened their products portfolio. Even though
substitute products present a threat to TCCC, the company has very strong performers in each of
its subcategories like Coca-Cola, Sprite, Ciel, and Powerade.21 As such, TCCC should feel
confident moving forward.
3. Bargaining Power of Buyers
Soft drink buyers can be divided into two major categories: end-consumers and
businesses. As a result of very low switching cost and wide availability of substitutes, endconsumers have relatively high bargaining power. TCCC acknowledges has acknowledged this
and stated that changes in consumer preference based on health concerns, shifts in consumer
taste, needs, and lifestyle can significantly impact its business.22 While individual end-consumers
may not have a high bargaining power, their collective behavior can impact TCCC.
Businesses that purchase soft drinks are divided into four categories, each with different
bargaining power: Fast Food Fountains, Vending Machine, Convenience Stores, and
Supermarkets.23 Major fast food chains, such as McDonalds, are relatively large and have
hundreds of restaurants. At the very least, each restaurant requires one soda fountain, so one big
fast food company can end up purchasing a huge volume of soft drinks in one transaction. Thus,
they have a significant bargaining power to ask for price discounts or other concessions. TCCC
is likely to accommodate their requests as the fast food chains help in introducing or distributing
its products into a large market. Furthermore, the amount of soft drinks purchased by fast food
chains is likely to be stable over a long period of time, which will generate stable revenue for
TCCC.
20
A Marketers Homage to the Soda Can. Bloomberg Businessweek.

http://www.businessweek.com/articles/2012-03-12/a-marketers-homage-to-the-soda-can
21
Id. At 18
22
Id. At 17
23
Cola Wars : Five Forces Analysis. Gouthams Thoughts. http://goutham.wordpress.com/2007/10/18/cola-warsfive-forces-analysis/
PAGE
12
Individual owners or the owner of the establishments in which the machines are placed
usually own vending machines. Individual vending machines owners purchase a considerably
low amount of product and the scope of their distribution is small. They have little to no
bargaining power with respect to TCCC or other major soft drink companies. Similarly,
convenience stores are highly fragmented and often owned by individual owners or franchisees.
Their purchase quantity is low, resulting in no bargaining power toward TCCC. This holds true
for franchisees, such as 7-11.24
Conversely, supermarkets or large retailers have a high bargaining power. This is largely
due to their ability to provide good shelf space and thus expose soft drinks products to a large
number of potential consumers. The large volume of products that they buy coupled with the fact
that they are the primary means of distributing product to end-consumers, provide them with
more room to negotiate with TCCC or other soft drink companies. However, their bargaining
power is somewhat reduced by end-consumers brand loyalty. Products from companies with
strong consumer brand loyalty like TCCC are desired by end-consumers to the extent that they
might not buy competing or substitute products offered by the retailers. As a result, retailers
often cant simply threaten to not sell certain soft drink brands as a bargaining position.
4. Bargaining Power of Suppliers
The main ingredients for soft drinks are water, sugar, caffeine, flavor, and/or juices.25 In
addition, plastics for packaging and paper for labeling are foundational to producing soft drink
products. These elements are basic commodities. This implies that TCCC can easily find other
suppliers if its existing suppliers are no longer satisfying its wants or needs. To illustrate this
point, one can find a list that contains hundreds of sugar suppliers around the world by solely
performing online search. TCCC discloses one or two main suppliers for some of the main
ingredients in its 10K reports.26 It also states that the company generally has not experienced any
difficulties in obtaining the required ingredients through those suppliers. This might indicate that
TCCC has strong bargaining power toward its suppliers and it has significant numbers of
undisclosed suppliers. However, TCCCs ability to negotiate price is limited by the commodity
24
http://www.franchising.com/seven11/ 7-Eleven Franchise Opportunity

Id. At 17
26
http://www.exportbureau.com/food/sugar.html
25
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13
nature off the ingredients and the extent to which commodity prices are dictated by actual supply
and demand.
5. Rivalry Among Existing Competitors
Globally, several key players such as TCCC, PEPSI CO., Danone, and Nestle dominate
the competition in soft drink market. The following table shows top 10 global soft drink
companies in terms of their 2011 volume sales.
In North America though, the most intensive
competition is between TCCC and Pepsi Co. In fact,
TCCC acknowledges in its 10K report that Pepsi Co.
is
its
primary
competitor.
Historically,
both
companies have been competing intensely since early

1900s. But it wasnt until 1980s that TCCC started to
view Pepsi Co. as its main competitor. TCCCs
market share fell from a high of 60 percent in 1940s
to just 22 percent in 1984. Pepsi, on the other hand,
managed to acquire 18 percent of the soft drink
market in that period. Much of Pepsi Co.s success is
attributed to its intense focus on younger and more
urban consumers. The Pepsi Challenge taste test
performed in 1984 also helped them shape a better brand image against Coca-Cola. It was not
until TCCC introduced a new recipe for Coca-Cola that TCCC started to gain the upper hand
again in the competition. The Pepsi Challenge taste test encouraged TCCC to do its own
independent taste test.27
Surprisingly, Pepsi Cola did actually outperform Coca-Cola in term of taste by a small
margin. In response, in 1985 TCCC introduced a new recipe for Coca-Cola, which caused public
uproar. Loyal consumers felt that Coca-Colas recipe was sacred and represented valuable
elements of their life. Not long after that, TCCC capitulated and announced the return of Coke
Classic. Fortunately for TCCC, the uproar and controversy surrounding the launch of New
Coke and Coke Classic actually helped propel the sale of Coke Classic. Since then, TCCC
27
The Coke Machine: The Dirty Truth Behind the Worlds Favorite Soft Drink. Michael Blanding. 2010
PAGE
14
has managed to stay on top of Pepsi Co.28 Based on the information on the previous table,
currently TCCCs global volume market share doubles Pepsi Cos.
The competition between TCCC and Pepsi Co. not only pertains to advertising and
product innovation, but often involves legal litigation. In 1942, TCCC sued Pepsi in various
courts in different countries for the use of Cola in its product name claiming that the word
belonged exclusively to Coca-Cola.29 To date, the legal battle between them ensues. For
example, in 2009, Pepsi sued TCCC for false advertising and unfair competition. Pepsi felt that
TCCCs claim in its advertisings that Gatorade was lacking certain ion or nutrition in comparison
to Powerade was baseless.30
With respect to the global soft drink market, TCCC and Pepsi Co. are intensely
competitive. Looking at the previous table, TCCC seemed to have a dominant position in global
soft drink market. TCCCs share is even bigger than the market share of the 5 companies
following TCCC combined. TCCC, however, is not performing well in some of the individual
sub-category markets. For instance, in the bottled water subcategory, its Ciel brand is not as
successful as Aqua. In addition, TCCC does not have a strong position in Sports and Energy
Drinks segment. Pepsis Gatorade, Red Bull, and other players are performing much better than
TCCCs products in this segment.31 Additionally, most of TCCCs global main competitors are
multinationals who often had already established strong user base in certain countries. Therefore,
the main players often have to compete in vast array of products, in different categories and in
different countries. This renders the competition in the soft drink industry among existing
competitors very intense.
D. Opportunities
1. Steady Growth Expected for Soft Drinks in US and Worldwide
From 2007 to 2009, soft drinks experienced a negative growth due to the global
recession. The most negatively impacted category was 100% juice, carbonated water, and sports
drinks, all of which experienced decline in their volume sales. In 2010, however, global volume
sales of soft drinks rebounded, which was primarily fueled by consumption growth in emerging
28
Id
Id
30
Pepsi sues Coke over energy drink claims. Reuters. http://uk.reuters.com/article/2009/04/14/us-pepsi-cokeidUKTRE53D02520090414?sp=true
31
29
PAGE
15
markets. Most of the categories experienced positive growth and the medium term outlook is
bright.32 TCCC can take advantage of this positive climate to strengthen its brands and product
portfolios. The promising outlook also gives TCCC an opportunity to freely invest more in the
companys weaker subcategories without a substantial threat of declining sales of its main
products.
2. Developed Countries Shifting Preference Toward Healthy Products
Recently, consumers are now looking for healthier soft drinks for several reasons. First,
the demographic composition in some developed regions, such as Western Europe, is expected to
shift toward older age consumers. Second, recent concerns about negative effects of sugars and
other additives have raised health awareness. The high growth of low calorie carbonates, Asian
specialty drinks, and RTD teas in recent years is a testament to this new health-conscious trend.33
Depending on how it is viewed, this new trend can represent significant opportunity or threat to
TCCC. TCCCs position in Asian specialty drinks and RTD teas is not as strong as its position
in other categories. Those two categories represent a very small fraction of TCCCs sales.34 In
general, TCCC is not known for its healthy product. Nevertheless, consumer preference is of
highest importance to soft drink companies and TCCC must consider the high possibility of
growth in this segment. Gaining better foothold in the healthy segments of soft drink industry by
either launching healthier variants of its current products or reinforcing its current healthy brands
will be critical in ensuring TCCCs future dominance in the soft drink market.
3. Developing Countries Present Significant Growth Opportunity
As was discussed previously, emerging markets represent the bulk of the growth in the
global soft drinks market. BRIC countries are expected to drive most of this growth.35 There are
a lot of opportunities for TCCC in each of those emerging markets, especially where TCCC is
already a dominant force and has a solid distribution network. Mostly due to the projected
composition of age group, each emerging market has specific subcategories that are predicted to
grow significantly. China is expected to account for more than 60 percent of global juice volume
growth between 2010 and 2015, while Indonesia is projected to experience a 126 percent growth
32
Id
34
35
Soft Drinks Billion Dollar Growth Markets to Watch. 21 March 2012. Euromonitor International
33
PAGE
16
in sports drinks sales.36 TCCC should carefully assess specific growth characteristics that each
developing market has and plan its strategy accordingly. Establishing proper foothold and
anticipating particular categories growth will secure TCCCs future position.
4. Growing Energy Drink Sector in US
The energy drink sector was one of the fastest growing sectors in U.S. from 2003 to
2008. This category experienced over a 34 percent
compound
annual
growth
rate
(CAGR).
The
recession has arguably affected the sales of these

relatively expensive and discretionary products. As a
result, growth has recently slowed to only 3 to 4
percent. However, as the U.S. economy recovers, the
energy drink sector is expected to reach a steady high
single digit growth.37 In terms of size, the energy
drink market is relatively attractive. In 2008, U.S.
energy drink total sales were $4.8 billion.38
TCCC tried to penetrate the energy drink
market with the introduction of its Full Throttle product in 2004.39 However, over the last
couple of years the share of the product has declined. In 2012, Full Throttles market share is
only 1.4 percent. Currently, the dominant brands are Red Bull, Monster, and RockStar.40
Fortunately, most of the dominant brands are not owned by TCCCs main competitors and are
still significantly smaller than TCCC as a whole. Thus, the opportunity of acquiring those
companies is wide open to TCCC.
36
Id. at 35
Energy Drinks Entering a New Phase of Growth. 2 March 2012. Euromonitor International
38
Energy Drinks: An Assessment of Their Market Size, Consumer Demographics, and Regulations in the United
States. http://guayaki.com/images/uploads/pages/File/ENERGY%20DRINKS%20UI.pdf
39
http://www.energyfiend.com/caffeine-content/full-throttle-energy-drink
40
Spotlight Category Energy Drinks 52 Weeks Through 9/9/2012. BevNet http://issuu.com/bevnet/docs/07october2012?mode=embed&layout=http%3A%2F%2Fskin.issuu.com%2Fv%2Flight%2Flayout.xml&showFlipBtn=true&p
roShowMenu=true&pageNumber=20.
37
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17
E. Threats
5. In US, Carbonates Drinks Expected to Experience Steady Decline in Medium
Term
Despite the fact that TCCC owns almost 3,500 different beverage products, 71% of its
total off trade volume sales in 2011 comes from Carbonates. The previous figure shows the
breakdown of TCCCs sales by category in 2011. If carbonates consumption continues to
decline, TCCCs total sales and profitability will be greatly affected. The projected decline in
U.S. carbonates sales can be attributed to over-saturation in the market, the maturity of the
market, and recent concerns toward the healthiness of hi-sugar carbonates.41 While the projected
decline might also affect TCCCs competitors, TCCC is more dependent on its carbonates
products than its main competitors. Moreover, TCCCs products in other categories are not as
strong as TCCCs products in the carbonates category. Globally though, carbonates are still
expected to grow significantly. Thus, in medium term, TCCC can still offset the loss in U.S. with
gains in other countries. Nevertheless, the U.S. remains TCCCs main market. Losing sales in
U.S. is likely to reduce TCCCs overall growth projections and investors confidence.
6. Rising Commodity Prices
Most of the ingredients that TCCC uses to produce its products are commodities. Thus,
they are subject to fluctuating prices. Unfortunately, the price of the ingredients has risen in
recent years. TCCC said that its cost of goods rose 10 percent in the first quarter of 2012.42
Continual rise in cost of goods can significantly impact the profit margins of companies in this
industry, as well as their other expenditures like advertising.
7. Rising Concerns Toward Negative Health Effects of Soft Drinks
As previously mentioned, consumers are now more health conscious and are looking for
healthier drinks. This represents significant threat to TCCC, especially given the fact that TCCC
is not strong in the health and wellness segment. In its 10K report, TCCC acknowledges that
recent concerns about obesity and adverse effects of consuming drinks with high sugar contents
present a significant risk factor to its business.43 TCCCs ability to shift its focus or strengthen its
position in this segment will be critical in achieving its growth target.
41
Coca-Cola 1Q Profits Rise Due To Growth In Emerging Markets, Energy Drinks. Huffington Post.
http://www.huffingtonpost.com/2012/04/17/coca-cola-profits_n_1431069.html
43
42
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18
8. Economic and Political Instability

Economic downturn and political instability in the U.S and internationally can negatively
impact TCCC in various ways. A recession, such as the recent U.S. recession, can reduce
consumers discretionary spending, thereby reducing demand for TCCC products. An economic
downturn can encourage consumers to choose lower priced products like private labels products.
Recent instability in the European financial sector has affected the stability of the credit market.
As a result, TCCCs cost of borrowing might be negatively affected.44 Given the international
scope of its operation, TCCC should prepare a contingency strategy that considers the potential
effects of economic and political instability situation on the business.
F. Internal Analysis
The non-alcoholic beverages industry is a highly competitive industry that consists of a
few, large international companies with some competition from numerous small regional and
local companies. The industry is relatively fragmented. The majority of the production is divided
among a few companies; however, no single company is large enough to influence the industry's
direction or price levels. In this industry, the main demand drivers are the demographic shift,
particularly trends in population and age, household size, and disposable income, and consumer
tastes.45
Companies that want to perform well and generate high profitability in this cutthroat
industry must focus heavily on the industry profit drivers. These include a good product mix,
efficient operations, superior service, and effective marketing. TCCC invested a lot to build,
acquire, or enhance its success drivers. TCCC now has a portfolio of more than 500 brands, the
world's largest beverage distribution network. It also has very effective advertising campaigns,
including sponsoring different games and teams and being featured in television programs and
films. However, intense competition remains a threat to the worlds largest beverage company
and TCCCs performance could be adversely affected.
The remainder of this section includes an internal analysis of TCCCs strengths and
weaknesses.
44
45
Id
http://globaledge.msu.edu/Industries/Food-and-Beverage
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19
1. Strengths
a. Portfolio of Leading Brands
TCCC has the highest brand recognition across the globe. In 2012, Coca-Cola was
declared the worlds most valuable brand according to Interbrand, one of the leading brand
consultancies. Interbrand valued the Coca-Cola brand at $77.8 billion, in comparison to Pepsis
$16.6 billion valuation.46 Additionally, TCCC has a strong brand portfolio, which consists of
more than 500 brands. TCCC owns four of the top ten soft drink brands in the world: Coca-Cola,
Diet Coke, Sprite and Fanta. Strong brands facilitate customer recall and allow TCCC to
penetrate new markets, while consolidating existing ones. They also allow TCCC to charge
premium prices, an advantage that most of the other competitors lack. TCCC has invested
millions of dollars to build or acquire these brands, which makes it very hard and costly for
competitors to build competing brands.
b. Robust Distribution Network
Consumers in more than 200 countries enjoy TCCCs products at a rate of more than 1.7
billion servings each day.47 That became possible because of TCCCs robust distribution
network, the worlds largest beverage distribution system, which consists of bottling companies,
distributors, wholesalers and retailers. TCCC manufactures and sells finished sparkling and still
beverages, and beverage concentrates and syrup. Finished products are produced and distributed
by the company-owned bottling and distribution operations. The beverage concentrates are sold
to independently owned and managed bottling partners, who manufacture and distribute the end
products.48
As of December 31, 2011, TCCC owned or leased 198 beverage, concentrate, syrup,
and/or bottling production plants, and 3 bottled water facilities. It also operated 287 principal
beverage distribution warehouses, and had hundreds of authorized bottling partners. 49 This
extensive distribution network ensures steady flow of business for the company. It also helps the
company to broaden its customer base by covering broader geographic areas. In addition to these
direct benefits that TCCC generated from its network, the company entered in many distribution
agreements with its competitors to distribute their products. For example, TCCC has distribution
46
http://www.interbrand.com/en/Default.aspx
48
Id
49
Id
47
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20
agreement with DrPepper and Monster to distribute their products in North America. 50 This
shows how important to have your own distribution networks to lower your costs and to have
control over your products.
This large distribution network has been one of the major competitive advantages of
TCCC. Distribution is a major driver for profitability in the beverage industry and TCCC has
invested hefty amount of money in building this massive distribution network. This
infrastructure would be extremely difficult and costly for other competitors, especially new
entrants, to duplicate.
c. Large Scale of Operations
TCCC is the largest beverage company in the world. Its operations span more than 200
countries. TCCC with its portfolio of more than 500 brands generated more than $46.5 billion in
revenues in 2011. As mentioned above, the company owns or has interest in 198 beverage,
concentrate, syrup, and/or bottling production plants, and 3 bottled water facilities. TCCC also
operates 287 principal beverage distribution warehouses. All these figures show how large is
TCCCs scale of operations.51
This large scale of operations allows TCCC to have many advantages over its
competitors. It has cost advantages over its competitors because of the large economies of scale
the company enjoy. Large firms like TCCC have access to more finance and get favorable
interest rates. They also get more investment money than small firms. For example, pension fund
managers usually buy stocks in only big corporations.
TCCC and its bottling partners are among the world's top purchasers of some raw
materials including sugar, citrus juice, and coffee. This gives the company a bargaining power
over the suppliers of these raw materials.
2. Weaknesses
a. Heavy Reliance on Carbonates
More than 71% of TCCCs total off trade volume sales in 2011 were from carbonates. 52
This heavily dependency on carbonates leaves the company vulnerable to changes in that
50
Id
Id
52 The Coca-Cola Co. In Soft Drinks (World). July 2012. Euromonitor International
51
PAGE
21
industry. While its key competitor, PepsiCo, is highly diversified by offering wide range of food
products, TCCC limits its products to beverages relying heavily on carbonates.
Beside the vulnerability that this reliance causes, carbonates categorys performance has
not been good as of late. Carbonates industry in general showed some signs of weaknesses with a
CAGR of 1.3 in the past five years. Based on Euromonitor International, the future of carbonates
will be more like the past five years and carbonates will have a negative growth rate of 0.2% in
the US.53
While the weakness of carbonates industry will affect all the companies in the market,
TCCC will be affected more since it depends largely on carbonates. Most of the big competitors
in the market are well diversified. PepsiCo, Inc., Nestle, Dr. Pepper Snapple Group, Inc., Groupe
Danone, Kraft Foods Inc. and Unilever are all having other products that balance the
performance of carbonates. PepsiCo, for example, offers ready-to-drink teas, juice drinks, bottled
water, as well as breakfast cereals, snacks, cakes and cake mixes.
b. Product Quality Issues and Frequent recalls.
TCCC was involved in a number of product recalls, which is affecting consumer
confidence in the brand. Recently, Coca Cola Shanxi Beverages, the companys Chinese
subsidiary, recalled some of its products because these products were contaminated by chlorine
while doing a routine maintenance procedure. In 2010, Coca Cola North America voluntarily
recalled some of SmartWater PET Bottles because these beverages did not meet the US FDAs
quality standard for bottled water.54 Also, in 2009, the Central Bottling Company, which is
owned by Coca Cola, recalled several products in Israel including bottles of Coca Cola and Diet
Coca Cola as traces of benzene and sulfur were found in these drinks.
Product recalls like these cause negative publicity and, in turn, tarnish brand image. If
these recalls continue spreading between Coca Cola plants and subsidiaries, TCCC will lose the
consumer confidence in the company's products, and that will adversely affect the performance
of the company in the future.
TCCCs portfolio of brands is the companys most valuable asset and these brands were
built on trust and quality. If the company cant preserve its brands, it will lose its most powerful
success driver in this industry.
53
54
Id
http://nativesunjax.wordpress.com/category/food-safety/page/2/
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22
G. Mission, Vision, and Values

TCCC is the worlds largest beverage company and yet operates on a local scale, in every
community where it conducts business.55 TCCC is committed to local markets, paying attention
to what people like to drink that are from different cultures and backgrounds, and where and how
they want to drink it.56 TCCC believes that its success depends on its ability to connect with
consumers by providing them with a wide variety of options to meet their desires, needs and
lifestyle choices.57
In order to continue to thrive as a business over the next ten years and beyond, TCCC
must be forward-looking, understand the trends and forces that will shape the business in the
future, and move swiftly to prepare for what's to come.58 TCCC must get ready for tomorrow
today, which is what TCCCs 2020 Vision is all about. It creates a long-term destination for
TCCCs business and provides the company with a Roadmap to success.59
1. Mission Statement
The TCCC Roadmap starts with TCCC mission. At TCCC, the mission is threefold:
I. To refresh the world in mind, body and spirit.
II. To inspire moments of optimism and happiness through TCCCs brands and actions.
III. To create long-term value for our shareowners.
TCCCs goal is to use its companys assets which include its brands, financial strength,
unrivaled distribution system, global reach and the talent and strong commitment of its
management and associates to become more competitive and to accelerate growth in a manner
that creates value for TCCCs shareowners.60
2. Vision
The TCCC vision serves as the framework for its Roadmap and guides every aspect of the
business by describing what TCCC needs to accomplish in order to continue achieving
sustainable, quality growth.61
http://www.coca-colacompany.com/our-company/the-coca-cola-system
57 Id
58 http://www.coca-colacompany.com/our-company/mission-vision-values
59 Id.
60 TCCC 2011 Annual Report
61 http://www.coca-colacompany.com/our-company/mission-vision-values
55
56
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23
Portfolio: Bring to the world a portfolio of quality beverage brands that anticipate and satisfy
people's desires and needs.
Profit: Maximize long-term return to shareowners while being mindful of TCCCs overall
responsibilities.
Productivity: Be a highly effective, lean and fast-moving organization.
Partners: Nurture a winning network of customers and suppliers, who will create mutual,
enduring value with TCCC.
People: Be a great place to work, where people are inspired to be the best they can be.
3. Values
TCCC values shape its attitudes, beliefs, and behaviors that will be required to achieve
the TCCC mission and vision. They serve as TCCCs compass as the company navigates
through the Roadmap.
Leadership: The courage to share a better future
Collaboration: Leverage collective genius
Integrity: Be real
Accountability: If it is to be, its up to me
Passion: Committed in the heart and mind
Diversity: As inclusive as our brands
Quality: Anything worth doing, is worth doing well
H. Quantified Strategic Objectives
1. History
TCCCs revenue increased over the past 5 years.
($ million)
Revenue
2007
28,857
2008
31,944
2009
30,990
2010
35,119
2011
46,542
TTM
47,602
TCCCs rates of return have been stable over the past decade with slight fluctuations in
general and considerable increase in 2010 due to the effect of Coca-Cola Enterprise acquisition
in that year. TCCC made a huge one-time profit from this acquisition, which largely affected
these rates of return. After the acquisition, ROE returned to its normal range around 27%. Since
CCE is capital intense investment, the acquisition affected the ROA and ROI, which dropped to
11%, 14% range, respectively.
PAGE
24
ROE
ROA
ROI
2002
26.33
13.00
18.13
2003
33.58
16.77
23.71
2004
32.29
16.52
22.74
2005
30.18
16.04
21.57
2006
30.53
17.11
23.33
2007
30.94
16.33
22.75
2008
27.51
13.86
19.08
2009
30.15
15.30
20.54
2010
42.32
19.42
25.93
2011
27.37
11.21
14.96
TTM
26.49
10.45
13.71
The companys cash flow has been relatively stable and slowly increasing.
($ million)
FCF
2007
5,502
2008
5,603
2009
6,193
2010
7,317
2011
6,554
TTM
7,538
The companys stock price has experienced ups and downs during the last 5 years; falling
in 2007 and recovering in 2008; then falling in 2009 again and recovering for the last 3 years.
$
Stock Price
01-03-2007
24.14-24.44
01-02-2008
30.56-30.79
01-02-2009
22.52-23.00
01-04-2010
28.45-28.61
01-03-2011
32.56-32.94
01-02-2012
34.98
The companys market capitalization has been also fluctuating. TCCC lost a significant
portion of the market in 2008 but has fully recovered and increased its market share today.
($ billion)
Market Cap
Dec 2007
141.80
Dec 2008
104.76
Dec 2009
132.08
Dec 2010
152.09
Dec 2011
158.92
YTD
170.71
62
2. Customers perception in terms of:

a. Product quality
The company has grown globally. It means that customers from all around the world
agree that the product quality is high. Nevertheless TCCC has been experiencing a number of
issues that resulted in lawsuits. One of the most recent issues was a quality issue in China.
Another issue that TCCC is facing now and may have to face more often in the future is health
concerns about drinking soda in general. The market is moving towards more healthy drinks; the
customers in Western countries are becoming more conscious. All this can be a severe threat to
the companys further expansion. Cola may satisfy both utilitarian and emotional needs. People
drink Cola to reduce their thirst but people also like to drink Coca-Cola for an experience of the
refreshing moment. The company has been spending a lot of money on the advertising
campaigns. TCCCs marketers have tried to make cola a product that also satisfies higher level
needs such as hedonic needs, ego needs and self-actualization. The company targets the higher
level needs in order to build brand loyalty for ensuring consistent sells. Although Coca-Cola can
62
financials.morningstar.com/ratios/r.html?t=KO&region=USA&culture=en-US
PAGE
25
be found in any country; the company sees future potential in expanding overseas. TCCC held a
Fire-passing activity to pass the fire of the Olympic Games, in preparation of the Beijing 2008
Olympic Games. Not only can this raise the brand awareness of Coca-Cola in the new market of
China, it can also enhance the involvement of consumer from a low one to a high one, making
them to feel like Coca-Cola being a part of their lives.
b. Market share
According to Euromonitor recent research63, TCCC still has the top spot in the list of the
top soft drinks.
1) Coca-Cola classic (Coca-Cola)
2) Diet Coke (Coca-Cola)
3) Pepsi-Cola
4) Mountain Dew
5) Dr. Pepper
6) Sprite (Coca-Cola)
7) Diet Pepsi
8) Diet Mountain Dew
9) Diet Dr. Pepper
10) Fanta (Coca-Cola)
Soft drinks industry has experienced a severe decline in 2009 due to the new Congress
law prohibiting the sale of soft drinks within secondary schools. Congress is now regulating the
types of drinks allowed in school vending machines in an attempt to reduce childhood obesity.
Therefore TCCC sees its potential growth abroad.
Imports of soft drinks grew 3.7% from 2004 to 2009, accounting for an increased share of
total domestic consumption. Imports exceeded 289 million gallons in 2009, totaling more than
$1.4 billion. Switzerland accounts for the largest share of imports (34%), followed by Austria
(25%) and Mexico (21%), according to the U.S. International Trade Commission. 64
3. TCCCs Innovative Products
TCCCs latest innovations is Coca-Cola Freestyle, an advanced soda/beverage dispenser.
TCCC also created No-Calorie Drink (Coke Zero) motivated by the increasing consumer demand
63
64
accuval.net
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26
for the healthier products. Zero Coke offers same taste as regular Coke but no calories. Another
innovation of the company was Calorie Burning Tea (Enviga). It was a part of the companys
commitment to keep up with the changing customers lifestyles.
TCCC has several reasons behind innovation strategy: 1) changes in customers demands
and lifestyles especially the move towards healthier products; 20 expansion of non-carbonated
category and bottled water; 3) one of the reasons why TCCC engages in product innovation is to
gain a first mover advantage because it helps the company to define the competitive rules; gain
superior access to channels and inputs; 4) growth in emerging markets requires customization; 5)
by introducing new products TCCC strengthens its brand image as the home of quality
beverages.
4. History of previous acquisitions
TCCC has performed a number of acquisitions. It acquired Minute Maid in 1960; the
Indian cola brand Thums Up in 1993, and Barq's in 1995. In 2001, it acquired the Odwalla brand
of fruit juices, smoothies and bars for $181 million. In 2007, it acquired Fuze Beverage from
founder Lance Collins and Castanea Partners for $250 million.
In 2007 TCCC purchased Energy Brands Inc., also known as Glaceau, for $4.1 billion in
cash, to boost its presence in the fast-growing "enhanced-water" and energy-drink markets. The
acquisition was believed to provide TCCC with a strong foundation from which to develop
"active-lifestyle beverages," the company said. As sales of carbonated soft drinks slowed down,
the TCCC has been trying hard to develop or acquire water, tea and juices as well as energy- and
sports-drink brands.65
Another large acquisition performed by TCCC almost took place in September 2008
when the company intended to acquire Chinese juice maker China Huiyuan Juice Group for
approximately $2.5 billion. That was another evidence that the TCCC wants to diversify away
from carbonated soda drinks for healthier non-carbonated drinks. In opinion of the companys
executives soda market does not demonstrate the same growth potential as the non-carbonated
drinks market does. Nevertheless the companys bid was turned away and this acquisition did not
take place.
65
marketwatch.com
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27
Most recent and the largest acquisition done by TCCC took place in 2010 when TCCC
acquired North American operations of bottler Coca-Cola Enterprises Inc. in a deal valued at
$12.3 billion.66
Based on the companys historical performance we can set a number of quantified
objectives for the next 10 years:
1) Financial:
TCCC will achieve ROE greater or equal 50%; ROA greater or equal 13%; ROI
greater or equal 15%
Maintain a debt/total capital ratio of 50%
2) Size:
TCCC will keep its position as the market share leader in soft drinks industry
TCCC has stated aim to double its size over the 2010-2020 decade
3) Growth:
TCCC will achieve revenue growth of 7%
TCCC will achieve EPS growth at a rate greater or equal to 7%
4) Diversification: since the carbonated drinks industry is highly saturated, TCCC wants to
diversify its market so only 50% of its revenues will be generated by carbonated drinks
department
5) Technology: TCCC will be recognized by its customers as the industry quality leader
6) Innovation: TCCC will develop new products to attract new customers and to will be
recognized by its customers as the industry innovation leader
I. Business Strategy
1. TCCCs Model
TCCC is an amorphous company, although the roots begin at the inception of the CocaCola beverage, today the company boasts more than 500 different brands in 200 countries.67 The
company leverages the brands through licensing agreements, international joint ventures, and
bottling agreements. However, according to the former chairman of TCCC, Douglas Ivester, the
main strength of Coca-Cola Company is its ability to maintain a global position. In the most
recent annual report, TCCC has stated that its objective is to use our formidable assets
66
67
www.bloomberg.com/apps/news?pid=newsarchive&sid=ayIm0dQClBNA
TCCC 2011 Annual Report.
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28
brands, financial strength, unrivaled distribution system, global reach, and the talent and strong
commitment of our management and associates to achieve long-term sustainable growth.68
TCCCs strategic priorities are driving global beverage leadership (through the utilization of)
accelerated innovation, leveraging balanced geographic portfolio, and leading the Coca-Cola
system for growth.69 It seems that the corporate strategy is built around the concept of satisfying
global demand and facilitating growth in that context. Coca-Colas business strategy has been
unchanged for decades.
Although TCCC presses for global dominance, the company is also involved in satisfying
local demands. The company does not subscribe to the one size fits all philosophy, rather the
company creates unique products to satisfy regional trends. The company emphasizes locally
owned and operated bottling and distribution operations. The result is a unique experience that
differs from region to region, tailored to the flavors and preferences of that region.
TCCCs primary strategy is based on profitability derived from the correlation between a
firms market share and the increase in profitability. This strategy, defined by Buzzell and Gale,
recognizes that scales of economy and market share leadership lead to:
1. Dependable and consistent product.
2. Provide customers with a consistent experience, customers will become comfortable with
the product, and customers will be unwilling to venture off and try new products.
3. An influential position that allows the company to negotiate lower prices from suppliers
and exert price pressure on competitors in each region.
4. A more organized management team.
TCCC has utilized this strategy in magnificent form. The company has excelled as an
industry leader, cost leader, and has made historic gains in global dominance. Coca-Cola is the
benchmark. (For other competitive considerations, please see SWOT Analysis Section).
TCCC has begun a mission of vertical integration by purchasing the North American
business of Coca-Cola Enterprises Inc. (CCE), one of Coca-Colas major bottlers. We are yet
to see how this fits into TCCCs larger plan and whether it will conflict with its business model
of local bottlers and distributors.
68
69
Id.
Id.
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29
J. Implementation Strategy
Given the business strategy and objectives, TCCC can choose to explore new
opportunities and hedge against threats by making acquisitions, launching in-house initiatives, or
partnership agreement.70 TCCCs company history suggests that TCCCs in-house initiatives are
very successful in the carbonated segment. Fanta and Sprite, introduced in 19xx and 19xx, are
currently one of the top global carbonated drinks.71 Coke Zero and Diet Coke are also very well
received in the market, though one might argue that these drinks are only minor variations of the
original Coca-Cola. In bottled water and sports drinks, TCCCs Powerade and Dasani are
relatively successful though not as strong as their position in the carbonated segment. Ciel, a
bottled water brand developed by TCCC, is also doing very well in the Latin America market.
However, in other segments, such as juices, TCCC has been relatively successful through
acquisitions. Minute Maid, which was acquired in 1960, has a volume sale of 3.2 billion liters
and is currently number 1 in its category.72 TCCC also acquired Odwalla, a smoothie 100% NotFrom-Concentrate (NFC) juice company, in 2001 for $181 million.73 Over the years, TCCC also
has got into partnership agreements with various companies, such as Nestle, DrPepper, and
Monster.74 Most of these alliances, however, are not on product development and more on joint
distribution agreement in various countries or part of TCCCs charity or sustainability projects.75
This reflects the fact that launching a new beverage does not require a significant capital or
Research and Development effort, unlike the high technology sector, where strategic alliances on
joint product development are more common.
Conclusively, TCCC does not seem to have a specific preference of one method over the
other. However, recent trends suggest that TCCC has been making a lot of acquisitions to sustain
growth and keeping up with Pepsi Co. In the last 4 years, Pepsi has acquired Wimm-Bill-Dann, a
Russian juice and dairy producers, Amacoco Nordeste, a Brazillian coconut water company, and
two major Pepsi bottlers. TCCC, on the other hand, has acquired Innocent, Nidan, a Russian fruit
70
Mergers, Acquisitions, and Other Restructuring Activities. Donald M. DePamphilis. 2012

72
Id
73
Coke buys Odwalla. CNN Money. http://money.cnn.com/2001/10/30/deals/coke_odwalla/
74
75
Muhtar Kents 5 Keys to Innovation. http://www.coca-colacompany.com/stories/muhtar-kents-5-keys-toinnovation
71
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30
and vegetable juice producer, Honest Tea, and Zico76. TCCCs most recent high profile
acquisition is the purchase of majority stake in Coca-Cola Enterprises (CCE) North America
bottling operation for $ 12.3 billion which is also suggested by many analysts as TCCCs
strategic move to follow Pepsis acquisition of its bottlers.77 Recent preference for acquisitions,
especially in the developed market, makes sense as developing new products in house often takes
a lot of time and attention. Moreover, in a relatively saturated market where products are
primarily differentiated through branding, launching a brand new product means that the
company has to build a new image from scratch. Acquisition is also very appropriate in the
segment that TCCC already launched its own product, yet has not been able to gain significant
market share. A very good example is in the energy drink sector, where TCCCs Full Throttles
market share has declined significantly to 1.4 percent in 2012.78 In developing or emerging
markets, building a new product still makes sense as typically not many significant competitors
exist and a lot of the segments are still unexplored. However, rapid rate of globalization has
allowed smaller markets to become more visible and major multinationals are racing to gain
market share. Thus, speed becomes very important. From this perspective, acquisition in
developing markets makes sense as it can rapidly provide a platform for expansion or essentially
a first mover advantage among the multinationals. Moreover, acquiring local brands is
relatively cheap and can help TCCC leverage the brand and understanding of local markets.
Thus, the overall implementation strategy for TCCC can be divided into two sections.
First, in developed market, TCCC should make strategic acquisitions especially in the areas that
are expected to grow significantly yet TCCCs products are still not well positioned. Some
examples are energy drinks and healthy segments. Acquisitions in developed market allow
TCCC to gain control of the acquired companies and realize a lot of synergy in brand equity and
distribution. If done strategically, it can also prevent TCCCs main competitors, such as Pepsi
Co. from gaining proper foothold in the segment. The dynamic of their competition in
acquisition is illustrated in Pepsi Cos Gatorade acquisition. At first, both TCCC and Pepsi were
negotiating an acquisition deal with Quaker Oats who owned the Gatorade brand. When
76
Id. At 63
Muhtar Kents New Coke. http://www.coca-colacompany.com/stories/muhtar-kents-new-coke.
78
Spotlight Category Energy Drinks 52 Weeks Through 9/9/2012. BevNet http://issuu.com/bevnet/docs/07october2012?mode=embed&layout=http%3A%2F%2Fskin.issuu.com%2Fv%2Flight%2Flayout.xml&showFlipBtn=true&p
roShowMenu=true&pageNumber=20.
77
PAGE
31
Quakers board finally rejected TCCCs offer, Pepsi Co. quickly stepped in and acquired the
company79. Secondly, in the emerging markets, TCCC can choose to either launch its own new
products or making strategic acquisitions. In launching a new product, TCCC must carefully
assess and identify which segments are expected to grow and how the competitive landscape
looks like. Overall, acquisitions seem to be the best method in achieving TCCCs business
objectives discussed in previous sections. It allows them to quickly expand and gain significant
market share against its main competitors. Furthermore, by taking control of the acquired
companies, TCCC can achieve tremendous amount of synergy by combining the strength of the
acquired brands in particular segments with its manufacturing, distribution, and marketing
capabilities, thus obtaining better profit margin. From a financial perspective, TCCC also has the
financing capability to acquire most small to medium companies in the soft drink industry.
Nevertheless, TCCCs resources are not unlimited, so acquiring the right companies is critical in
achieving its business objectives.
K. TCCCs Business Plan Valuation
a. Key Assumptions Cash Flow Forecast
In forecasting the financial metrics below, we relied on information we sourced from
TCCCs audited financial statements from the previous four years. The following table
summarizes the key assumptions in calculating Free Cash Flow. A detailed discussion of these
assumptions will follow.
Avg. 4 year
Historical
Previous Year
2011
Sales Growth Rate
14.3%
32.5%
Gross Profit Margin
63.3%
60.9%
59.6%
SG&A/Sales
36.4%
36.8%
39.8%
Tax Rate
21.5%
24.5%
25%
Gross Fixed Assets/Sales
52.4%
49.7%
50%
Cash Balance / Sales
26.9%
30.2%
10%
Other Current Assets / Sales
25.8%
24.6%
25%
Current Liabilities / Sales
47.5%
52.2%
50%
Metric
Avg. 5 Year
Forecast
3.6% (5 years)
4% (terminal)
79
PepsiCo quenches thirst with Quaker Oats deal. CNNfyi.com.

http://archives.cnn.com/2000/fyi/news/12/04/pepsi.purchase/index.html
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32
Growth Rate
In the last four years, TCCCs sales have been fluctuating. The sales decreased by 3% in
2009 and then increased by 13% in 2010 and 32.5% in 2011. The reason for the increases in
2010 and 2011 can be attributed to the acquisition of CCE. TCCC acquired CCE in October
2010. Therefore, the effect of this acquisition was marginally reflected in 2010 and fully
reflected in 2011. However, sales growth started slowing down in 2012. Based on the results of
the first three quarters of 2012, TCCCs sales were only about 3% more than the sales in the first
three quarters of 2011. Therefore, we assumed this growth rate will continue for the first two
years, and then it will increase to 4% thereafter.
Operating Margin (EBIT)
Operating income is mainly Gross Profit minus Selling, General & Administration
expenses. In forecasting for Gross profit margin, we assumed that the gross profit for 2012 and
2013 is going to be the same margin for 2011, which is about 61%. The margin is expected to
decrease slightly in the future since TCCC started moving toward finished products by acquiring
some of its bottling partners. Finished products have lower margins, which will affect the profit
margin of TCCC, but not by much in the coming five years. Based on our assumptions, the
average of gross profit margin in the coming five years is about 59.6%.
The second part in calculating the operating profit is calculating SG&A expenses. The
SG&A expenses as percentage of sales has been stable in the past four years. However, the
selling expenses have increased sharply from 17.5% in 2009 to 25% in 2011. This big hike can
be attributed to the acquisition of CCE in 2010, which increased delivery-related expenses. But,
this increase in selling expenses was offset by a drop in general and administration expenses.
Again, this saving in the administration expenses is one of the synergies from CCE acquisitions.
In future, we believe the selling expenses will increase slightly as TCCC will continue shifting
the product-mix toward finished products. The average of SG&A/sales for the coming five years
is three percentage more than 2011 levels.
Tax Rate
The effective tax rate was used in the calculation of WACC and net income, not the
marginal tax rate since the effective tax rate reflects actual tax savings from doing business
overseas. Most of TCCC's earnings generated offshore. They're housed in its foreign subsidiaries
PAGE
33
and are not taxed here because TCCC plans to keep them there indefinitely80. TCCC pays a far
lower tax rate on income generated offshore, likely less than 20%. The company pays an overall
24 to 25% tax rate, well under the 35% U.S. rate. Per its annual report, TCCC expect the tax rate
to be between 24 to 25% in 2012.
81
In the forecast for TCCC, we assumed the tax rate will
continue to be 25% in the next five years.

Capital Expenditure
In calculating the change in fixed assets, we used gross fixed assets as a percentage of
sales. This gross fixed assets/sales ratio was around 52% in the last four years. It increased
sharply in 2010 due to the acquisition of CCE. The acquisition happened in October 2010;
therefore, only two months of sales were included in the total sales for that year. The ratio came
back to its normal range in 2011. We assumed that the ratio will be in the 2011 level in the
coming five years.
Net Working Capital
We used three ratio to forecast the change in networking capital; Cash Balance / Sales,
Other Current Assets / Sales, and Current Liabilities / Sales. We assumed that the current assets
and current liabilities ratios to stay at 2011 levels since these ratios were pretty stable in the last
four years. Minimum cash balance/sales was really high in the past four years and it was
increasing sharply. As of December 31, 2011, TCCC had about $14 billion of cash in its books.
We believe TCCC doesnt need to keep all that amount of cash in its accounts. In calculating
what percentage of sales should the company keep on hand, we calculated the average of
cash/sales
for
TCCCs
competitors
(the
complete
calculations
will
be
shown
Resource/capability evaluation section in the acquisition plan). Based on our calculations,

TCCCs competitors keep on average cash equivalent to about 8-10% of sales. We used this
percentage for forecasting the amount of cash on hand in the future. The excess cash was used in
investments.
b. Key Assumptions WACC
Metric
Re-levered Beta
80
81
Avg. 4 year Historical

0.66
Coca-Cola's Dividend Contortions. http://seekingalpha.com/article/402371-coca-cola-s-dividend-contortions

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34
Market Risk Premium

Risk free rate
6.00%
1.70%
Moodys A interest rate

Optimal Long-Term Debt/Equity
Additional Risk Premium
WACC (Forecast Window)
WACC (Terminal)
3.49%
40%
2.00%
6.11%
9.11%
Because TCCC is an established company and is in a good financial position with an

A+ rating from Standard & Poors, Aa3 from Moodys and A+ from Fitch, we
assumed for purposes of the WACC that it is currently operating at its optimal capital structure82.
The other assumptions that need to be mentioned here is that after calculating WACC, we
ended up with a WACC of 4.11%. Since TCCC is shifting toward bottling business that will
change the risk inherent in the company business. Therefore, we increased WACC for the
coming five years by 2%.
For the terminal, we increased the WACC by another 3% since the WACC is artificially
low. We believe the interest rate will increase in the future to its normal range. In order to
calculate the real value of the company we increased the WACC in the terminal.
c. Valuation
Valuation: $35.03 per share
Market Price (as of Dec. 4, 2012): $37.15
Sensitivity Analysis
% Change
WACC
(5years)
+1%
0%
(1%)
Market
Value /
Share
$ 33.66
$ 35.03
$ 36.47
Change in
Valuation /
Share
($1.37)
$0.00
+$1.44
% Change Sales
Growth
(5 years)
+1%
0%
(1%)
Market
Value /
Share
$ 35.79
$ 35.03
$ 34.27
Change in
Valuation /
Share
+$0.76
$0.00
($0.76)
% Change
WACC
(Terminal)
+1%
0%
(1%)
Market
Value /
Share
$ 30.92
$ 35.03
$ 41.14
Change in
Valuation /
Share
($4.11)
$0.00
+$6.11
% Change Sales
Growth
(Terminal)
+1%
0%
(1%)
Market
Value /
Share
$ 41.44
$ 35.03
$ 30.72
Change in
Valuation /
Share
+$6.41
$0.00
$4.31
82
Id
PAGE
35
d. Financial Statements
Projected financial statements and complete DCF valuation are included in the Appendix
(Pages A-1 to A-4).
PAGE
36
II. Acquisition Plan

A. Plan objectives
The general objective is to acquiring a high growth player in the energy drink segment.
Monster offers an opportunity to consolidate the current and failing TCCC energy drinks into a
single, more successful, brand. TCCC offers a sophisticated and industry leading cost leadership,
access to customers, and distribution channels. An acquisition of Monster would plug the
Monster product into the TCCC machine. This could lead to strong synergy through the coupling
of the Monsters rapid growth and TCCCs efficient distribution and capacity networks. This will
also help TCCC diversify its portfolio, since the carbonated beverage market is maturing. For
TCCC this is a coupling of diversification and growth opportunity. More specifically, we expect
sales of Monster to grow an additional 5% a year for the next five years as a result of TCCCs
distribution network. We expect Monsters distribution costs to drop by 10%. Also, raw material
costs to be reduced by 5% for Monster products or roughly a $35mm cost savings. By combining
the two companies we expect to lay-off 700 workers from the sales and marketing staff from
Monster and an additional 100 workers from TCCCs current energy drink staff.
However, there are costs associated with the aforementioned savings. We expect the
merger cost, as resulting from integration and due diligence, will likely be $170mm. additionally,
we expect to pay $15,000 in severance packages (average annual calculated as 3.5 months pay)
for all 800 laid off employees, or roughly $13.5mm.
B. Timetable
Please see Appendix (Page. A-14) for the timetable for completing this acquisition.
C. Resource/capability evaluation
Firms available resources usually consist of internal resources available; sources from
debt market and sources from equity market.
1. Internal resources
Internal resources of the company are basically internally generated cash flows in excess
of normal requirements. To assess TCCCs cash burn requirements and cash build capacity
several financial documents were examined.
PAGE
37
TCCCs cash account has been steadily increasing over the past 5 years.
($ million)
Cash and cash equivalents
Short-term investments
Total cash
2007-12
4,093
215
4,308
2008-12
4,701
278
4,979
2009-12
7,021
2,192
9,213
2010-12
8,517
2,820
11,337
2011-12
12,803
1,232
14,035
The companys cash burn and cash build in past five years can be roughly determined as
following:
($ million)
COGS
Inventory
Change in inventory
Administrative expenses
Other operating expenses
Interest expense
Other expense
Prepaid expenses
Change in prepaid expenses
Accrued liabilities
Change in accrued liabilities
Payables
Change in payables
Gross plant and equipment
Capital Investments
Taxes
Net sales
Receivables
Change in receivables
Cash Burn
Cash Build
Net Cash Burn
Excessive Cash
2007
10,406
2,220
11,199
456
2,260
5,793
1,380
14,444
1,892
28,857
3,317
2008
11,374
2,187
(33)
11,774
350
438
659
1,920
(340)
4,835
(958)
1,370
(10)
14,400
(44)
1,632
31,944
3,090
(227)
26,778
32,171
(5,393)
5,393
2009
11,088
2,354
167
11,088
313
355
2,226
306
5,247
412
1,410
40
16,467
2,067
2,040
30,990
3,758
668
26,972
30,322
(3,350)
3,350
2010
12,693
2,650
296
12,693
819
733
3,162
936
6,972
1,725
1,887
477
21,706
5,239
2,384
35,119
4,430
672
33,591
34,447
(856)
856
2011
18,216
3,092
442
18,216
732
417
3,450
288
6,837
(135)
2,172
285
23,151
1,445
2,805
46,542
4,920
490
42,411
46,052
(3,641)
3,641
The table above shows that TCCC in the past four years has been generating cash that is
more than the need of the company. This cash can be used as a source of funds for purchasing a
new company.
The first table also shows that the cash account of TCCC has been growing fast and in
order to decided how much of that cash is excess, we used the industry average cash/sales. The
following table shows the company that we used in our calculation.
PAGE
38
Company Name
Cash as a % of Revenue
Coca-Cola FEMSA S.A.B de C.V. (NYSE:KOF)

Dr Pepper Snapple Group, Inc. (NYSE:DPS)
Nestle S.A. (SWX:NESN)
PepsiCo, Inc. (NYSE:PEP)
Average
9.89%
11.88%
5.26%
6.12%
8.3%
Most of TCCCs competitors keep cash equivalent to 8% of their sales. Using this
average to calculate the excess cash of TCCC, shows an excess cash of $8.9 billion as of
December 31, 2011.
2. Debt market sources
As of today around Long-term debt/Equity ratio for TCCC is equal to 0.49. Companys
long-term debt as of 12-2011 debt was $13,656 million and the companys equity was $32,269
million. While TCCCs Debt/Equity is about 0.5; the industry average is almost 1 so the
company has extra borrowing capacity.
TCCCs closest competitors financial structures as of 2011 are summarized below.
($ million)
TCCC
Nestle SA ADR
PepsiCo Inc
Dr Pepper Snapple Group, Inc
Cott Crp
Monster Beverage Corp
Average
LTD 12-2011
13,656
6,697
20,568
2,256
602
-
Equity 12-2011
32,269
61,277
20,745
2,263
556
1,164
D/E 2011
0.43
0.11
.99
1.00
1.08
No debt
0.94
D/E current
0.49
0.12
1.11
0.89
0.97
0.19
1
83
3. Equity market sources

The companys stocks are owned by two types of shareholders: Institutions and mutual
funds. The structure is presented below.
Ownership
Institutions
Mutual Funds
Total
Mil USD
108,433
41,097
149,530
%
73%
27%
100%
83financials.morningstar.com/ratios/r.html?t=KO&region=USA&culture=en-US
PAGE
39
TCCCs shares price experienced a relatively stable growth over the last decade as it
shown in the table below.
Stock Price
01-03-2007
01-02-2008
01-02-2009
01-04-2010
01-03-2011
01-02-2012
24.14-24.44
30.56-30.79
22.52-23.00
28.45-28.61
32.56-32.94
34.98
The research also showed that shares of many potential target companies were help by
the same shareholders as the shares of TCCC. Monsters and TCCCs shareholders structures
are presented in Appendix (A-13) as an example.
54.41% of Monsters shareholders equity belongs to TCCCs shareholders. Similar
situation was observed with some other of TCCCs potential acquisition target firms. We believe
that this shareholders structure will make a purchase of the target company with TCCCs shares
in full or partially possible.
D. Management Preferences
Ideally, management always prefers a well-priced friendly takeover as hostile takeover
typically reduces potential synergy, creates negative publications, and tends to increase the
takeover costs84. Friendly takeovers reduce the likelihood of employee turnover in the acquired
companies, thus reducing the need to find and retrain new employees. Unless natural attrition is
desired, low employee turnover and positive employees moral in the acquired company can help
speed up the integration process. However, for one reason or another, there are companies that
refuse to be acquired even though they are offered a satisfying price. In such case, if further
reassessments indicate that acquiring the company is critical, hostile takeover is the only option.
In the soft drink industry making hostile takeover might be acceptable. TCCCs
management expertise and distribution capability are usually enough to replace the acquired
companys management. Moreover, unlike in other industries, such as high technology, where
employees skills and tacit knowledge are very valuable, the most valuable components of most
companies in the soft drink industry are their brands. Thus, losing the senior managements of the
acquired company as a result of hostile takeover might not be such a bad loss. Historically
though, TCCC has not been known to conduct hostile takeover and might prefer to do so to
maintain its company image and avoid paying too much for a company. In this proposed
acquisition of Monster as well, it is in the best interest of TCCC to perform a friendly acquisition
84
Mergers, Acquisitions, and Other Restructuring Activities. Donald M. DePamphilis. 2012
PAGE
40
since Monster, if successfully acquired, will be used as a master brand of TCCCs energy drink
products. Moreover, keeping Monsters senior management team intact will not only ensure a
smoother integration process and allow them to maximize synergy, but will also enable them to
focus on bringing the Monster brand internationally. Hostile takeover should once again, only be
considered as a very last resort. TCCC should weight really carefully whether the option to
perform hostile takeover makes more sense than simply walking away from the deal.
Under current leadership of Muhtar Kent, TCCC has been acquiring smaller companies
such as Zico, Innocent, and Honest Tea. While some of the deals were not disclosed, looking at
the estimate of those companies revenue, analysts believed that each of those deals is smaller
than $200 million85. This contrasts with the acquisitions that were made before Kent took his
position as a CEO. In 2007, TCCC acquired Glaceau, the maker of VitaminWater and other
functional beverages, for $4.2 billion86. In 2001, TCCC acquired Odwalla, a natural smoothie
producer, for $181 million87. This new preference for acquiring smaller companies that cater to
certain niche markets is perhaps influenced by the entrepreneurial spirit that Kent often
emphasizes as the critical component in TCCCs current success88. However, all of the
acquisitions, both in Kent and his predecessor times, have a common theme: All of the acquired
companies are non-carbonates beverage brands. This signifies TCCCs strategy to reduce its
dependency on carbonated cola drinks89. The preference for smaller and less expensive
companies might also come from managements decision to not further strain TCCCs financial
figures. TCCC had just recently spent more than $12 billion to acquire Coca-Cola Enterprises
(CCE) North America operation90. The CCEs acquisition, though, is very different than TCCC
other recent acquisitions. CCE was a part of TCCC until it was spun off to be a separate bottling
company, so that TCCC can focus on its core operation and avoid being exposed to lower profit
margin of bottling business91. By buying back a part of CCE, TCCC must shoulder the risk of
obtaining more debts and being exposed to lower profit margin. It also makes the company more
complex and less nimble in terms of financial. However, buying CCEs North America operation
85
Cokes Secret Formula. The Deal Magazine. http://www.thedeal.com/magazine/ID/036493/special-reports-1/most-admiredcorporate-dealmaker/coke-secret-formula.php

86
Coca-Cola Is Said to Buy Vitaminwater. The New York Times.
http://www.nytimes.com/2007/05/25/business/25drink.html?_r=0
87
Coke buys Odwalla. CNN Money. http://money.cnn.com/2001/10/30/deals/coke_odwalla/.
88
89
90
91
The Coke Machine: The Dirty Truth Behind the Worlds Favorite Soft Drink. Michael Blanding. 2010
PAGE
41
allows TCCC to fully control its distribution operation in North America and maintain a more
direct relationship with retailers. Additionally, launching new products or adjusting size and
packaging now can be done much quicker. This move also follows Pepsi Co.s acquisitions of its
bottlers in 201092. All of these perhaps reflect how the competition in North Americas soft drink
markets has intensified with the rise of smaller players and private labels products.
Looking more closely at the recent acquisitions, TCCC has tended to keep the original
management intact. As part of the deal, TCCC agreed to keep the owners of both Innocent and
Honest Tea in their original position as long as they managed to hit certain revenue targets. Some
analysts speculate that this is due to concerns from current customers and green business
advocates that the acquisition by TCCC will dilute the original mission, values, and the product
quality of the companies93.
In recent acquisitions, TCCC also has the tendency to acquire a smaller stake first, and
then increase its stake into a controlling interest in the target company. In the acquisition of
Innocent, for instance, TCCC first acquired between 15 to 20 percent of Innocents share for
US$ 49 million in 2009. A year later, TCCC upped its stake to 58 percent94. Similarly, when
TCCC acquired Honest Tea, it first acquired 40 percent of the company for US$ 43 million, and
then three years later acquired the remaining 60 percent for undisclosed amount95. It is unclear
what motivated them to perform the acquisitions in such a way, or even if it is actually TCCCs
preferred way of acquisition. The acquisition of Glaceau VitaminWater, where TCCC directly
agreed to purchase a majority stake in one transaction, is a counter example of that. The multistage acquisitions seem to reflect the incompatibilities in business models and corporate culture
between TCCC and the healthy-oriented companies. At the same time, it might also reflect the
resistance from the acquired companies owners as they feared that selling to TCCC might
compromise their companys values and alienate their core customers. It is quite likely that
TCCC was aware of this and might initially acquire a smaller portion of the company to see how
92
Coca-Cola buying CCE North American bottling business. Market Watch Wall Street Journal.
http://articles.marketwatch.com/2010-02-25/industries/30719997_1_coca-cola-enterprises-coke-shares-bottling-business
93
The Big Green Buyout. The Environmental Magazine. http://www.emagazine.com/magazine/the-big-green-buyout
94
UK: Innocent Drinks Denies Coca-Cola Buy-Out Rumour. Just-drinks. http://www.just-drinks.com/news/innocent-drinksdenies-coca-cola-co-buy-out-rumour_id104817.aspx.
95
How Honest Tea has kept its corporate soul. CNNMoney. http://management.fortune.cnn.com/2012/09/17/honest-tea-cokeseth-goldman/
PAGE
42
the core customers of the brands would react and how much actual synergy could be realized
before committing more substantial resources for full acquisitions.
As mentioned above, some details of TCCCs acquisitions were not disclosed, so it is
impossible to accurately get what TCCCs preferences are in terms of using stocks, cash, or
debts as a form of payment. On those that were disclosed, TCCC tended to use cash and stocks
for expensive deals (typically more than $1 billion), and use cash for smaller acquisitions. TCCC
also did not reveal the proportion of cash or stocks that were used to finance a transaction. Thus,
it is hard to pinpoint, say, how much stocks or cash was used in the Glacaeu VitaminWaters
takeover. TCCC did not publicly announce how much debt they took to provide the cash
required for the transactions. The CCEs North America operation acquisition mentioned above
is also very different from TCCC other acquisitions. This is mainly due to the nature of CCE that
was originally a spin-off of TCCC. Thus, most of the shareholder groups that own CCE also own
a portion of TCCC. This implies a more complicated deal structuring and form of payment. In
other words, it is hard to use this particularly different transaction as a reference point for
TCCCs management preference.
E. Search plan
As it was said TCCC is a leader on a saturated market of the carbonated drinks and it
does not have a lot of room for growth. Therefore the company is willing to diversify its products
and to establish its influence on the new markets. As it was mentioned in the SWOT analysis, the
companys strategy is focused on finding the new customers and increasing its market share on
the non-carbonated drinks market such as market of iced teas; market of juices and a rapidly
growing market of energy drinks.
During the search process TCCC has examined a number of options. The search ranged
from small privately owned firms producing iced teas and innovative relaxation drinks to
publicly and privately held energy drinks companies. Below are the short profiles of the
companies examined.
1. Arizona Beverage Company
Arizona produces a variety of flavors of iced teas, juice cocktails, energy drinks, sport
drinks, smoothies, water and soda drinks as well as tea bags and tea mixes. The company uses
corn syrup to produce its beverages just as TCCC does. The company has been in business for 20
PAGE
43
years and considerably expanded its market share. Its revenue is about $620,000,000 with the
revenue growth of about 40% last year; the number of employees is between 500 and 1000. The
company is very conservative about advertising, significantly reducing its operating expenses
and targeting to be an industry cost leader. Share of the iced tea drinks market varies from one
year to another but it is about 32% on average being a domestic market leader. Arizona is a good
acquisition target at this point of time because its only two 50% shareholders John Ferolito and
Domenick Vultaggio have had some major disagreements in regards of running the business in
the past 4 years and even filed for the dissolution of the company.96
2. Red Bull GmbH
Red Bull is a privately owned Austrian company well known for its Red Bull noncarbonated energy drink. The company has been blamed for an abnormally high doze of caffeine
in its products, therefore the company is involved into a number of lawsuits. Nevertheless EFSA
has concluded that the amount of caffeine, sugar and other ingredients in the drink are safe for
the human health. It is a world market leader; its sales in 2011 were 4.6 billion cans or about
$2,770,000,000 in revenues. The company is on the market since 1987 and it has its presence in
America since 1997. The company is using a lot of its funds for advertising campaigns. The
brand has been endorsed by celebrities such as Eminem, Reggie Bush; advertised through sport
events.97
3. Monster Beverage Corporation
Monster beverage Corporation is publicly held and domestic. There are 27 different flavors
under Monster umbrella. Monster started as a fresh juice company in California, but the
company has successfully emerged as the world's second-largest energy drink company behind
Red Bull. Monster develops, markets, and sells a variety of nonalcoholic beverages, including
energy drinks, natural sodas, and fruit juices. Energy drinks make up the majority of the
company's business (92% of revenue), led by Monster Energy Drink. Monster mainly advertises
its products through sport events such as motocross, car racing, skateboard, etc.98
96
arizona-international.com/
97
http://www.bevindustry.com/articles/85655-consumers-seek-out-energy-boosts
98
seekingalpha.com/article/552071-coca-cola-explores-energy-drink-bolt-on
PAGE
44
4. Rockstar Inc
Rockstar Inc is known as a producer of Rockstar energy drink, which comes in 14
different flavors. It is an American company founded in 2001 with headquarters in Las Vegas
operating in the US and abroad since 2011. It is advertised as an ideal choice for highly active
people such as sportsmen or rock stars. Just like RedBull it supports numerous events including
Mayhem Festival various rock-performances.
5. Slow Cow
Slow Cow is a Canadian private company founded in 2008. It is specializing on
production of the relaxation drinks using natural ingredients. It is the exact opposite of the
energy drinks that cause hyperactivity, anxiety and the jitters. The anti-energy drink contains
ingredients like theanine, chamomile, valerian, passiflora and other ingredients known for their
calming effects. Although relaxation drinks market seems negligible in comparison to energy
drinks and ready-to-drink iced teas market, it is believed to be the new trend and is expected to
grow significantly. If fact, the sales volumes have already grown from $22.5 million in 2008 to
$223 million in January 2012.99
Name of the company
Type of the company
Key products
Revenue
Market share in US
Top 10 industry total sales
Profitability (Net Margin )
Arizona beverage
Private
Iced tea
$620 million
32%
$2.5 billion
18.5%
Red Bull
Private
Energy drinks
$2.77 billion
40%
$7 billion
17%
Monster
Public
Energy Drinks
$1.7 billion
30%
$7 billion
16.8%
Rockstar
Private
Energy drinks
$641 million
10%
$7 billion
17%
Slow Cow
Private
Relaxation drinks
$20 million
Around 10%
$223 million
15%
When evaluating the possible acquisition options we used the following list of search criteria:
1) Revenues of 1-2 billion dollars
2) 20-40% share of domestic market
3) High profitability margin
4) Minimum overlap with existing products of the company
5) Large market therefore growth prospective
Red Bull, Monster and Rockstar are belong to the biggest market niche. Energy drinks is the
fastest growing beverage segment in the US - according to a recent study, 30-50% of adults
99
www.slowcowdrink.com
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45
consume energy drinks regularly. In 2011 energy drinks market was valued as high as $33.5
billion dollars and is projected to grow in the future.
Arizona Beverage, Red Bull and Monster have leading market shares in their market
segments varying from 30% to 40%. Although Energy Drinks market has proved to be the
slowest market in the last year, we still believe that this market has a greater potential growth
than the market of iced teas or relaxation drinks market. The demand for the energy drinks is
higher in the US and in most European and Asian countries, which are the main targets for
TCCC. Energy drinks are also better for TCCC because they will not overlap with its main
product carbonated beverages. Although iced teas is a great way to diversify the product, they
may serve as substitutes for the carbonated drinks and may be consumed by the same customers.
Therefore the company will not be able to increase its total market share and revenues. Energy
drinks market is drastically different from the existing markets and will help the company to get
into a new market niche. 100
Finally, RedBull and Monster have revenues ranging from $1 to approximately $3 billion
dollars. Purchasing Rockstar does not seem reasonable because it will not bring sufficient
revenue and profit increase. It also be would be problematic since the company has tight
connections with TCCCs main competitor PepsiCo as Pepsi serves as a distributor for the
Rockstar brand.
Therefore, Red Bull and Monster are the best candidates to acquire. Purchase of RedBull
seems problematic and unrealistic for two reasons. At first, it is a very big private successful
company. The owner of the company would be very reluctant to sell the company and even if the
deal went through, RedBull would charge TCCC a large premium due to successful performance
of the acquisition target. Secondly, the companys headquarters are located in Austria and
RedBull is a foreign-owned company. The purchase of the foreign company would make TCCC
to incur additional uncertainties.
Accordingly, domestic Monster Inc. with headquarters in California, USA was chosen as
a best acquisition option. Buying a ready-made brand is an easy way for TCCC to get into the
energy drinks game. Moreover, TCCC already has an agreement with Monster to distribute some
of its drinks. Last year Monster was believed to be highly overvalued. It made both Pepsi and
TCCC reluctant to purchase the Monster. But the companys price has decreased significantly
100
www.bevindustry.com/articles/85658-2012-state-of-the-industry--tea-and-ready-to-drink-tea
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46
recently making it more attractive acquisition target. Therefore now purchase of the Monster
seems most reasonable and profitable.
The data presented below gives more information about the target company and supports
the decision about the anticipated acquisition.
Revenue from the company's energy drink products exploded from just $50 million in 2003 to
$1.7 billion by 2011 as the company's marketing efforts have resonated with consumers across
the United States. Now the company is looking to duplicate its success in its home market across
the globe.101
Stock Price (December 5, 2012)
Market Cap.
Trialing P/E
Price/Book
Revenue Growth (average 3 years)
Total Debt
Total debt/ Equity
$ 52
$ 8.9 Billion
22.0
10
18%
$0
N/A
From the industry research it is clear that Monster produces at least 4 top energy drinks. The
market share of Monster is increasing. 102
Top non-aseptic energy drinks
Dollar Sales
Red Bull
$2,763,321,000
Monster Energy
$1,453,076,000
Rockstar
$493,544,400
Nos
$244,747,300
Java Monster
$210,578,200
Monster Mega Energy $209,990,400
Monster
$206,800,700
Amp
$148,045,900
Rockstar Recovery
$147,221,600
Full Throttle
$97,554,790
Category Total*
$6,937,263,000
*Includes brands not listed
(Individual brands)
% change vs. 2011
19.5
21.6
14.3
12.0
22.6
18.0
1,997.1
6.4
81.3
-7.0
19.4
Market share
39.8
20.9
7.1
3.5
3.0
3.0
3.0
2.1
2.1
1.4
100.0
% change vs. 2011

0.0
0.4
-0.3
-0.2
0.1
0.0
2.8
-0.3
0.7
-0.4
-
quote.morningstar.com/stock/s.aspx?t=MNST
SymphonyIRI Group, Chicago. US supermarkets, drug stores, gas and convenience stores and mass merchandise
retailers, including Wal-Mart, for the 52 weeks ending April 15, 2012
101
102
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47
F. Negotiation Strategy
The proposed deal structure should help TCCC achieve its acquisition plan objectives
while satisfying Monsters highest priority objectives.
In addition to paying a reasonable
purchase price, TCCCs highest priority objective is to protect the company from Monsters
contingent liabilities. TCCC also desires Monster employee retention and non-compete
agreements. Monsters highest priority objective is to maximize the purchase price, which is
why TCCC is willing to offer up to as much as a 34% purchase price premium. Additionally,
Monster would like to sell off its liabilities, as well as retain its key employees.
The proposed deal structure consists of the following key elements: (1) proposed
acquisition vehicle; (2) post-closing organization; (3) form of payment; (4) form of acquisition;
and (5) tax structure.
1. Proposed Acquisition Vehicle
Taking into account legal, financial, tax, and other practical considerations, a holding
company is the most appropriate acquisition vehicle for this transaction. In light of recent events
and Monsters pending and threatened litigation, TCCCs highest priority objectives with respect
to an acquisition vehicle, include minimizing risk and insulating the company from Monsters
known and unknown contingent liabilities.
On October 17, 2012, Wendy Crossland and Richard Fournier (Plaintiffs) filed suit
against Monster in a wrongful death action for person injuries allegedly suffered as a result of the
December 23, 2011 death of their 14-year-old daughter.1 Plaintiffs allege that the decedent died
following her ingestion of a toxic amount of caffeine and other stimulants through her
consumption of two (2) 24-oz. MONSTER ENERGY drinks within a 24-hour period.2
Crossland also requested the release of the Food and Drug Administrations (FDA) adverse
incident reports, which link Monster energy drinks to five reported deaths.34
Additionally, Monster is a named defendant in class action lawsuits, 5 which could result
in a multi-million payout for compensatory damages, as well as penalties and fees associated
with punitive damages. Furthermore, the company is subject to litigation in the normal course of
business, including claims from terminated distributors.6 Even though Monster claims that such
litigation is not likely to have a material adverse effect on the companys financial position or
results of operations, it is impossible to predict the outcome of such litigation. As such, TCCC
needs to structure the acquisition of Monster in a risk adverse manner.
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48
Accordingly, TCCC shall adopt a holding company framework to acquire Monster,

which will be structured as a C-type corporation (C-Corp). The benefits of a C-Corp include
the following: (1) shares are easily transferred, (2) shares are easily exchanged, and (3) it
facilitates the consolidation with the parent company.
Even though partnerships and joint ventures provide for sharing risk and insulating the
acquirer from the targets liabilities,7 a holding company is preferred for this transaction. First,
TCCC wants effective control over Monster. Second, there is substantial equity in Monsters
brand name and a holding company will be the least disruptive to its current identity. Third, this
acquisition vehicle minimizes the reporting requirements to shareholders that would be required
if TCCC set up an LLC or LLP.
This acquisition vehicle had potential drawbacks as a holding company structure can
create tax problems for shareholders and could subject Monsters operating earnings to triple
taxation.8 TCCC, however, has structured the deal such that it may be treated as a non-taxable
event. Tax related considerations are addressed the following sections.
2.
Post-Closing Organization
The post-closing organization will be a wholly owned subsidiary that continues to operate
as a C-Corp. TCCC will acquire all of Monsters stock, which will be retired. A wholly owned
Monster subsidiary is preferred to a partially owned sub with respect to control. By owning
100% of Monster, TCCC will gain exclusive control and eliminate the treat of dissident minority
shareholders. An additional benefit to this structure is that it facilitates the spin off of certain
Monster assets that maybe need to be sold off in the future. It also maintains the integrity of the
Monster organization. It will assist in the financial reporting and related incentive compensation
packages with respect to the operation of the monster brand.
A subsidiary is a more appropriate post-closing organization than a corporate or
divisional structure. First, subsidiaries afford greater protection from Monsters known and
unknown liabilities. Second, subsidiaries allow for the decentralized management, where the sub
has its own management team.9 As discussed in the Implementation Strategy section, Monster
management has been successful with its energy drink products. As such, this acquisition is more
likely to create greater value if Monsters key employees run the energy drink operations. Third,
TCCC will be able to benefit from any goodwill and brand recognition attached to Monsters
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49
name that it would not otherwise reap if Monster lost its corporate identity as a corporate or
divisional structure.10
3. Form of Payment
The form of payment for this acquisition will involve $6 billion of cash, $3 billion of
stock and $3 billion of debt. Based on a valuation of Monster, the initial offer price range for
Monster is estimated at $13 billion, which represents a 32% premium over Monsters current
share price. Given TCCCs increasing cash balance and the potential for near-term earnings per
share dilution if not invested, TCCC will seek to finance 50% of the deal with cash. Cash is also
preferable. As a seller, Monster would likely want to receive some cash out of the deal from the
transaction, especially if there are older shareholders. TCCC shall include a proration clause in
the merger agreement that will fix the total amount of cash they will ultimately pay out to
acquire Monster. This will help to eliminate the uncertainty that exists when using combined
forms of payment.
25% of the deal will be financed by the issuance of common stock. A stock for stock
transaction would satisfy Monsters shareholders objectives with respect to taxes. By receiving
some stock, they will be able to defer tax liability until they decide to sell their shares. TCCC
seeks to use stock as a form of payment because its current stock price is exceptionally high.
Additionally, issuing stock will provide the key retained employees at Monster with an incentive
to work hard and help facilitate a smooth integration of both companies. The parties should into
a collar arrangement in order to in the event of any material adverse changes in either partys
common stock price prior to public announcement of the transaction.
The final 25% of this transaction will be financed with debt. TCCC has several options
with respect to debt financing; however, TCCC should obtain a secured loan for this acquisition.
Because TCCC has a good credit rating score, they will be able to get a very low interest rate.
By leveraging this transaction, TCCC will get a greater return on its investment.
TCCC will not seek to enter into an earn-out agreement with Monster. Both TCCC and
Monster are large publicly traded firms and an earn-out would not be feasible in this transaction.
Even though the size of the companies and their respective shareholders is the primary reason for
foregoing an earn-out, TCCC will use this as a form of leverage in negotiations. TCCC may
argue that it is shouldering all of the risk in the transaction and has not attempted to pass any of
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50
that risk onto Monster through an earn-out. As such, the purchase price should reflect TCCCs
assumption of risk.
Assuming there is a gap between Monsters price expectations and the offer price, TCCC
can use employment agreements as another form of payment to close that gap. Employment
agreements will be beneficial to both companies as Monster would want to protect its key
employees and TCCC would benefit from retaining such employees (see Integration plan).
TCCC should use employment agreements to show that it contains common interests with
Monster and the transaction can proceed in a non-hostile manner. This is not to say, however,
that employment agreements should not also be used as leverage in TCCCs favor as they are a
liability.
4. Form of Acquisition
The form of TCCC acquiring Monster is a stock acquisition using a combination of stock
and cash for Monster stock. In determining how ownership will be conveyed from acquirer to
target shareholders, TCCC can either: (1) make a tender offer to Monsters shareholders; or (2)
complete a merger with Monster. The first option is appealing because it eliminates the need for
a Monster shareholder meeting. It also minimizes the number of third-party consents and other
transfer approvals because the targets contracts, licenses and assets are not being transferred to a
new entity. However, it is unlikely that 100% will tender their shares and TCCC will likely end
up with Monster as a partially owned subsidiary, as opposed to a wholly owned subsidiary. In
contrast, in a merger, the buyer acquires 100% of the target, assuming the requisite vote of target
shareholders is obtained.11 Because TCCC wants to own 100%, a tender offer is too risky and a
merger structure is the preferred method of conveying ownership.
More specifically, a reverse triangular merger shall be employed in which the acquisition
subsidiary will merge into Monster, with Monster being the surviving organization. This
structure minimizes the need to obtain new contracts or assign Monsters rights under existing
agreements. By choosing this option, TCCC will not have to deal with dissident minority
shareholders. With respect to timing considerations, TCCC does not anticipate any other offers
from other bidders so it has sufficient time to complete a merger.
5. Tax Structure
This reverse triangular merger, for tax purposes, will be treated as a taxable purchase of
stock. As a general rule, the merger of the target with and into the buyer or a subsidiary for cash
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51
or other property, other than stock of the buyer, will be a taxable transaction.12
Monster will
recognize a taxable gain or loss on the appreciation or depreciation in the value of its stock,
which will be equal to the difference between the sale proceeds and Monster's tax basis in the
stock.13 The tax basis of the assets held by Monster will not be affected by the stock sale. Thus,
the assets held by the Monster are not subject to a step-up basis and a stock sale will not trigger
additional amounts of depreciation or amortization following the transaction.14
Even though this transaction satisfies the Internal Revenue Code Section 338 election
requirements, no election shall be made because the additional tax liability exceeds the present
value of the tax savings from the step-up in the tax basis of the net acquired assets. As such, the
values of Monsters assets and liabilities will be consolidated with TCCCs financial statements
after the acquisition, based upon the historical tax basis of the assets. The purchase price reflects
TCCCs loss with respect to the additional tax savings that would have resulted from acquiring
assets and writing them up to fair market value.
G. Purchase (offer) price estimate
Monsters Stand Alone Valuation

a. Key Assumptions Cash Flow Forecast
In forecasting the financial metrics below, we relied on information we sourced from
Mosters audited financial statements from the previous four years. The following table
summarizes the key assumptions in calculating Free Cash Flow. A detailed discussion of these
assumptions will follow.
Sales Growth Rate
18.4%
30.6%
Gross Profit Margin

SG&A/Sales
Tax Rate
52.6%
27.9%
38.1%
52.5%
25.7%
37.5%
Avg. 5 Year
Forecast
18% (5 years)
5% (terminal)
52.5%
28%
37.5%

3.8%
37.3%
23.7%
12.7%
4.8%
45.3%
24.2%
15.6%
5%
10%
25%
15%
Metric
Avg. 4 year
Historical
Previous Year
2011
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52
Growth Rate
From 2003 to 2008, Monsters sales had been growing by an average of 56% annually.
However, the growth started slowing down in 2009 and 2010, where the sales grew by 10 and
14%, respectively. The company realized that the market growth started reverting to normal
range; therefore, the company started expanding its sales internationally. In 2011, 20% of
Monsters sales came from outside US market, comparing to only 8% in 2009. Since the
company started focusing globally, the sales grew by 30% in 2011.
However, based on the results of the first three quarters of 2012, Monsters sales were
about 23% more than the sales in the first three quarters of 2011. Therefore, we assumed this
growth rate will start reverting to normal range in the coming five years. We used 18% growth
rate for the next five years. For the Terminal, we used a growth rate for the free cash flow of 5%
since the competition and the increased regulation on the energy drinks will affect the
performance of the company in the long run.
Operating Margin (EBIT)
Gross profit margin has been almost constant around 52.5% in the past four years;
therefore, we assumed that this gross profit is going to continue in the next five years.
The SG&A expenses as percentage of sales has been increasing since 2009, when the company
started focusing on international market. Therefore, we assumed that S,G&A/Sales will increase
from its level in 2011. We build our assumptions based on margin of 28% in the next five years.
Tax Rate
Monster started going internationally, where corporate tax rates are usually lower than
the US rate of 35%. However, these lower tax rates have been offset by the new taxes imposed
on energy drinks in some countries, such as, Mexico and Hungary. Therefore, we assumed that
the tax rate for the coming five years is going to be around the current effective tax rate, which
has been almost the same since 2008.
Capital Expenditure
In calculation the change in fixed assets, we used gross fixed assets as a percentage of
sales. This gross fixed assets/sales was increasing in the past four years, but the growth was
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53
decelerating. The ratio was around 5% in 2011 and we believe that the ratio will continue at this
level in the coming five years.
Net Working Capital
We used three ratio to forecast the change in networking capital; Cash Balance/Sales,
Other Current Assets/Sales, and Current Liabilities/Sales. We assumed that the current assets and
current liabilities ratios to stay at 2011 levels since we expect the company to continue its
operating strategies. Minimum cash balance/sales was really high in the past four years and it
was increasing. As of December 31, 2011, Monster had about $771 million of cash on hand. We
believe Monster doesnt need to keep all that amount of cash in its accounts. In calculating what
percentage of sales should the company keep on hand, we calculated the average of this ratio for
Monsters competitors (The same calculation for TCCC minimum cash on hand). Based on our
calculations, Monster should keep cash equivalent to about 10% of its sales. We used this
percentage for forecasting the amount of cash on hand in the future. The excess cash was used in
investments.
b. Key Assumptions WACC
Metric
Beta
0.45
Market Risk Premium
6.00%
Risk free rate
1.70%
3.49%
0%
2.00%
6.40%
WACC (Terminal)
9.40%
Because Monster has not had any debt in the past five years, we assumed for purposes of the
WACC that it is currently operating at its optimal capital structure (no-debt structure).
The other assumptions that need to be mentioned here is that after calculating WACC, we ended
up with a WACC of 4.40%. Since Monster is focusing more on international market that will
change the risk inherent in the company business. We believe the risk will increase since the
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54
company will be operating in new markets. Therefore, we increased WACC for the coming five
years by 2%.
For the terminal, we increased the WACC by another 3% since the WACC is artificially
low. We believe the interest rate will increase in the future to its normal range. In order to
calculate the real value of the company we increased the WACC in the terminal.
c. Valuation
Valuation: $58.79 per share
Market Price (as of Dec. 4, 2012): $51.64

d. Projected Financial Statements
All the projected financial statements and the DCF valuation are in the Appendix. (Page
A-5 to page A-12).

e. Purchase Price Range for Monster
Based on the expected synergies from the acquisition, which will be discussed next in
this section, the purchase price range is supposed to be between $9,733 million ($52.05/share) to
$24,856 million ($132.9/share). The expected value of the synergy from this acquisition is
$15,123 million and the price depends on how much of the synergy TCCC wants to give to
Monsters shareholder. We believe that Monsters shareholders should acquire at least 22% of
the synergy, which results in 34% premium on the share price on the closing day. Therefore, the
initial price will be $69.52. The deal is expected to be 25% shares and 75% cash. TCCC is going
to get a debt equivalent to 25% to use it in paying for Monsters shareholders. Since TCCC and
Monster are two different companies in term of growth and risk involved, we believe the
majority of Monsters shareholders would prefer to get cash instead of TCCCs share. TCCC
wants also to use debt to take advantage of the loans at artificially low interest rates.
A complete discussion of the composition and the price in the next section Financing
Plan.
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55
f. Sources of Synergies
1. Sales
Sales will increase since Monster will take advantage of TCCCs distribution networks.
Monster will be able to use this huge distribution network to get immediate access to the global
markets. In 2011, only 20% of Monsters sales came from outside US market. Monster has
almost no presence in international market comparing to Red Bull. Based on Morningstar recent
market valuation report, the sales of Monster beverages in the United States almost equal to Red
Bull while Monster's revenue outside of the United States is roughly 10% of what Red Bull
generates. Based on that report, the main reason for this low market share is Monster's
international distribution network, which is pretty small comparing to Red bulls.
Therefore, using TCCCs robust distribution network is expected to increase the growth
rate of Monsters sales from 18% to 23% in the next five years. This means an increase in sales
of $42 million in 2012 (since it is only 6 months). The increase in sales for the five years will be
$1.8 billion.
2. COGS:
Monster currently outsources the manufacturing process to third party bottlers. However,
Monster is responsible about providing the bottlers with the needed raw materials. After the
acquisition, Monster will be able to cut some of the raw material costs, since monster will take
advantage of TCCCs high bargaining power over its suppliers. Also, since both companies are
using the same raw materials, combining orders will allow them to take advantage of higher
discounts. Based on the 2011 annual report of Monster, raw materials account for the largest part
of cost of sales; therefore, we expect a saving of 5% in cost of sales in our forecast. This is about
$310 million of saving in the next five years.
3. S,G&A:
Monster is currently using a number of distributors, including TCCC which distributed 29%
of monsters sales in 2011, to distribute its products to target markets. After the acquisition,
Monster will terminate its contracts with other distributors and use only TCCCs distribution
networks. Using TCCCs distribution network will lower the distribution costs by about 10%.
Since we didnt have enough information to calculate the costs of distribution, we assumed it
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56
is 50% of the selling expenses. Therefore, using TCCCs distribution networks will save
Monster 10% of half of the selling expenses. This is expected to be about $10 million in 2012
and about $127 million in the next five years.
However, terminating the contracts with the existing distributors will result in termination
fees. Based on Krause Fund Research, most of monster distribution contracts can be
terminated with 90-days notice103. Therefore, we assumed the termination fees to be low. It
is also mentioned in the 2012 annual report of Monster that terminating contracts will not
results in material adverse effect on the Companys financial position or results of operations.
Based on these facts, we believe the termination fees to be about $22.5 million. This number
is assuming that 50% of the contracts, not including TCCC contract which is about 29% of
the distribution, dont have 90-days notice clause and these contractors will be paid 4
months worth of distribution revenue.
As discussed earlier, we recommend that TCCC to keep the key personnel in Monsters sales
and marketing division and terminate un-needed staff. As of December 31, 2011, monster
had 1,543 employees in sales and marketing activities, of which 701 were employed on a
full-time basis. We believe TCCC can cut 50% of this staff after the acquisition, which is
about 750 employees. With an average pay of $50,000, terminating 750 employees will save
about $37.5 million annually. However, there is a severance cost associated with terminating
employees. We assumed that TCCC has to pay a severance package of $16,670 (4 moths
pay) per employee.
The acquisition will allow Monster to cut some of the General and Administrative costs.
Because of the staff duplication, including legal staff, some of the overhead personnel and
others, TCCC will be able to save some costs by terminating some of these duplicated
employees. We expect a termination of 100 employees of the 357 employees in
administrative and operational capacities in Monster. We also expect to terminate 50
employees of TCCCs employees, who are working in the TCCCs existing energy drink
brands. With an average pay of $45,000, TCCC can save $6.75 million annually from the
termination of these employees.
However, a severance package of $15,000 for every
employee will be paid.

103
http://tippie.uiowa.edu/krause/spring2012/mnst_sp12.pdf
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4. Acquisition and Integration costs

To complete the acquisition, TCCC has to pay different costs, including feasibility study
cost, due diligence costs, legal costs, integration costs, and training costs. It is hard to precisely
calculate these costs; therefore, we looked for a comparable acquisition to get a clue about these
costs. The best comparable acquisition that we found was the acquisition of CCE. TCCC paid
more than $12 billion to acquire CCE in October 2010. This acquisition is relatively recent and
in the same size of Monster acquisition.
In CCE acquisition, TCCC had to pay about $135 million for integration costs, which are
mainly costs associated with the development and design of the future operating framework104.
Therefore, we believe the integration costs related to the acquisition of Monster will be in line
with this number. We assumed the expenses of the integration and training to be around $150
million. Another $20 million is expected for other costs related to the acquisitions, including
feasibility study, due diligence, and negotiation.
g. Results of Acquisition
Based on the explained synergies above, the acquisition will create a synergy of $15.1
billion. This will improve EPS for TCCCs shareholders. The following table shows the
comparison between the EPS before the acquisition and after for TCCCs shareholders.
EPS without acquisition

EPS after the acquisition
2012
2013
2014
2015
2016
$1.49
$1.51
$1.56
$1.67
$1.53
$1.69
$1.58
$1.80
$1.41
$1.72
H. Financing plan
The acquisition will be financed using 3 sources: cash, stocks and debt. Since TCCC has
$14 billion in cash at the beginning of 2012, it can finance a big part of acquisition using its
excess cash. As it was mentioned earlier industry analysis has revealed that the companies in this
industry usually try to maintain its cash account equal to roughly 8-9% of their annual sales.
Being conservative TCCCs management assumes that the company will need to have cash
104
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58
equals 10% of its revenue in 2012. TCCC will still have extra $9 billion in cash available.
Therefore, TCCC can use $6.5 billion of its excess cash to finance the acquisition of Monster.
TCCC should keep another $2.5 billion in cash for unexpected expenses. Therefore 50% of the
deal will be financed with cash.
Another 25% of the deal will be financed with the stock. The nature of the business
performance of TCCC and Monster is drastically different. TCCC is an old established company
with slow growth rate. On contrary, Monster is a fast-growing perspective company. Therefore
TCCCs it is anticipated that many of Monsters shareholders will want to sell their shares and
wont be willing to convert their Monsters shares into TCCCs shares. That is only 25% of the
total acquisition is expected to be financed with the shares. Nevertheless it is expected that some
of the Monsters shareholders will be willing to convert their shares into TCCCs shares.
Finally, 25% of the deal will be financed with debt. TCCC will have to take a loan to
finance the remaining $3.25 billion. Currently Monster has no long-term debt. Therefore even
after a new loan the companys financial leverage will not change significantly and TCCC will
still be able to maintain it Debt/Total Capital ratio at 40%.
Based on the projected financial performance TCCCs financial leverage, interest
coverage will not suffer from the new loan and TCCCs debt rating will increase after the
anticipated acquisition.
LTD/E
Interest Coverage
Bond Rating
2011
2012
2013
2014
2015
2016
43%
25
AAA
31%
31
AAA
23%
36
AAA
17%
42
AAA
13%
44
AAA
7%
78
AAA
105
As explained before, TCCCs EPS after the acquisition will be higher than its EPS without
the acquisition. This shows that the acquisition will not dilute the profitability of TCCCs
shareholders.
105
pages.stern.nyu.edu/~adamodar/New_Home_Page/datafile/ratings.htm
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I. Integration plan
There are several options for TCCC to utilize. TCCC currently provides space and
resources for their energy drinks Full Throttle, Nos, Power Play, and Mother. The absolute
failure of these brands, at less than 3% market share collectively, raises the question of whether
to extinguish these brands.
TCCCs purchase of Monster could give these beverages new life. There are three options:
1. TCCC purchases the Monster brand (including the beverage recipe) and dismantles the
management team, facilities, and distribution networks.
2. TCCC purchases the Monster brand and keeps them as a separate entity, allowing the
management team, facilities, and distribution networks to continue in current form.
3. Everything in between.
Distribution Networks
Its unlikely that TCCC will utilize Monsters existing distribution networks, because
TCCC is the absolute leader and will want to utilize its own networks. In fact, Monster is using
CCE, owned by TCCC, to distribute its products in North America. After the acquisition,
Monster will be able to use this huge distribution network to get immediate access to the global
markets. This could potentially position Monster to be a global hit.
Management
Monsters current management team has done a fantastic job. Their performance is
second to Red Bull only. Monster, with its humble beginnings, has maintained market share and
has enjoyed the rapid growth in the industry. Monster has evaded competitors such as the TCCC
brands.
Monsters current management may be unwilling to transition to the TCCC brand and
corporate environment. It will be a good idea for TCCC to train the Monster management team,
however, the TCCC team might want to listen and learn from Monster as well.
Our recommendation is for TCCC to maintain Monsters autonomy and allow the
company to continue its current strategy, however, will the leverage and added tools that TCCC
can provide. This strategy has an added benefit, the Monster management team might be able to
rejuvenate the other TCCC brand energy drinks.
PAGE
60
TCCC Brand Energy Drinks

Within this framework, then the question becomes, how to proceed with the existing
brands? TCCC has invested heavily in creating, marketing, and distributing a beverage that can
compete with RedBull and Monster. TCCC has the best team in the business to satisfy the taste
buds, they just need a more youthful and energetic management team like Monsters to help give
them direction.
If TCCC utilizes a model that gives Monsters management autonomy, the TCCC can
create something bigger, a subsidiary company that specializes in Energy drinks, not limited to
Monster. The Monster team could be enhanced with TCCC managers to infuse the Monster
model into the other existing energy brands. The subsidiary can create a brand warehouse, each
label can segment the market and distinguish itself from its competitors. As the energy drink
market explodes, segmentation will become more important. Segmentation and market share
dominance has always been the TCCC model.
TCCC can help the Monster team produce new products to satisfy regional and global
tastes. This marriage of youth and energy of Monster with the sophistication and global
dominance of TCCC can create a brand warehouse that will inevitably dominate the markets.
TCCC can utilize this high-energy department to launch new brands worldwide and use the
Monster management model and energy to revitalize its energy brands.
This segmentation model may help recuperate any lost investments in the Full Throttle
brand while limiting the cannibalism of the brands.
Recommendation
Our recommendation is to purchase Monster but to maintain limited management
autonomy while also integrating Monster into TCCC distribution network. We would restructure
the subsidiary as a think-tank for energy drinks rather than a Monster Energy Drink Subsidiary.
This think tank would be responsible for Monster and all other TCCC energy drinks.
Structuring the Subsidiary
The Monster brand will be maintained at status quo and will continue to be under the
exclusive management of the Monster Management Team (MMT). The MMT will have
additional responsibilities. The MMT will be paired up with TCCC management to determine
segments of the market that should be capitalized; this team will be the Energy Drink Team
PAGE
61
(EDT). The EDT will be responsible for ALL other energy drink brands sold by TCCC
globally. The EDT will revitalize the currently existing brands such as Full Throttle. With the
energy of MMT and the sophistication of the existing TCCC management team, the EDT should
be able to create new products to collectively gain a leadership position in the global energy
drink market. Through this strategy, TCCC can maintain its own dominance in the world
beverage market.
Legal Considerations
By maintaining the energy drinks as a subsidiary, TCCC can limit its liability if it turns
out that energy drinks are dangerous. Recent reports have shown that the beverages can be
carcinogenic (cancer causing), lead to heart failure, or even immediate death. 106 Maintaining a
separate entity with limited affiliation, TCCC can create a separate brand identity that will not
hurt TCCCs goodwill if the energy drink market becomes a disaster.
III. Conclusion
TCCC is the most popular and biggest-selling soft drink company in history, as well as
the most recognized product in the world. TCCC has dominated the majority of its competition,
doubling Pepsis sales in 2011. TCCC depends heavily on carbonates, which represented 71% of
its total off trade volume sales in 2011. In an attempt to reduce this dependence, TCCC has
recently tried to change its product mix. They started creating and acquiring different types of
beverages, including iced-tea, juices, and bottled water.
TCCC is active in the acquisition market, as it generates huge cash amounts that exceed
the companys needs. Currently, TCCC has approximately $9 billion of excess cash that can be
used in an acquisition. Based on the research findings, Monster would be a great fit for a TCCC
acquisition. Monster is the second largest energy drink company. Monster is a fast growing
company, but it was unable to complete globally with Red-bull since it lacks the necessary
distribution networks. Conversely, TCCC has one of the largest and most efficient distribution
networks of all beverage companies. If TCCC can acquire Monster, Monster will be able to use
106
Monster Energy cited in FDA death reports. CNN Money, October 2012.
PAGE
62
this huge distribution network to get immediate access to the global markets. This could
potentially position Monster to be a global hit.
Monsters share price went down by about 35% recently, which makes it very attractive
for TCCC.
If TCCC and Monster can consummate this proposed acquisition, TCCC and
Monster can potentially create a synergy of approximately $15 billion.
PAGE
63
IV. Appendix
Appendix 1: TCCC Forecasted Income Statement
Page
A1
Appendix 2: TCCC Forecasted Balance Sheet
A2
Appendix 3: TCCC Forecasted Cash Flow Statement
A3
Appendix 4: DCF Valuation of TCCC
A4
Appendix 5: Monster Forecasted Income Statement
A5
Appendix 6: Monster Forecasted Balance Sheet
A6
Appendix 7: Monster Forecasted Cash Flow Statement
A7
Appendix 8: DCF Valuation of Monster
A8
Appendix 9: Combined Forecasted Income Statement
A9
Appendix 10: Combined Forecasted Balance Sheet
A10
Appendix 11: Combined Forecasted Cash Flow Statement
A11
Appendix 12: DCF Valuation of Combined
A12
Appendix 13: Acquisition Timetable
A13
Appendix 14: Top 50 equity owners at TCCC and Monster
A14
PAGE
64
TCCC Pro Forma Income Statement
PAGE
65
PAGE
66
PAGE
67
TCCC DCF Valuation

Assumptions:
Avg. 4 year
Historical
Previous Year
2011
Sales Growth Rate
14.3%
32.5%
Gross Profit Margin

SG&A/Sales
Tax Rate
63.3%
36.4%
21.5%
60.9%
36.8%
24.5%
Avg. 5 Year
Forecast
3.6% (5 years)
4% (terminal)
59.6%
39.8%
25%

52.4%
26.9%
25.8%
47.5%
49.7%
30.2%
24.6%
52.2%
50%
10%
25%
50%
Metric
WACC:
Metric
Re-levered Beta
Market Risk Premium
Risk free rate
0.66
6.00%
1.70%
3.49%
40%

WACC (Terminal)
2.00%
6.11%
9.11%
PAGE
68
Valuation:
PAGE
69
Monster Pro Forma Income Statement
PAGE
70
Monster Pro Forma Balance Sheet
PAGE
71
Monster Pro Forma Cash Flow Statement
PAGE
72
Monster DCF Valuation

Assumptions:
Sales Growth Rate
18.4%
30.6%
Gross Profit Margin

SG&A/Sales
Tax Rate
52.6%
27.9%
38.1%
52.5%
25.7%
37.5%
Avg. 5 Year
Forecast
18% (5 years)
5% (terminal)
52.5%
28%
37.5%

3.8%
37.3%
23.7%
12.7%
4.8%
45.3%
24.2%
15.6%
5%
10%
25%
15%
Metric
Avg. 4 year
Historical
Previous Year
2011
WACC:
Metric
Beta
Market Risk Premium
Risk free rate
0.45
6.00%
1.70%
3.49%
0%
2.00%

WACC (Terminal)
6.40%
9.40%
PAGE
73
Valuation:
PAGE
74
Combined Firms Pro Forma Income Statement
PAGE
75
Combined Firms Pro Forma Balance Sheet
PAGE
76
Combined Firms Pro Forma Cash Flow Statement
PAGE
77
Combined Firms DCF Valuation
PAGE
78

MBAF 624: Mergers and Acquisitions Acquisition Team Project: Business Plan

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MBAF 624: Mergers and Acquisitions Acquisition Team Project: Business Plan

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MBAF 624: Mergers and Acquisitions

Acquisition Team Project

Executive Summary ............................................................................................................... 3

II. The Coca-Cola Business Plan ................................................................................................ 6

Company Background ................................................................................................................. 6

Industry/Market Definition ......................................................................................................... 7

External Analysis: Applying Porters 5 Forces Model ............................................................. 9

Internal Analysis ........................................................................................................................ 19

Mission, Vision, and Values ....................................................................................................... 23

Quantified Strategic Objectives ................................................................................................ 24

Business Strategy ........................................................................................................................ 28

Implementation Strategy ........................................................................................................... 30

TCCCs Business Plan Valuation ............................................................................................. 32

III. Acquisition Plan.................................................................................................................... 37

Plan objectives ............................................................................................................................ 37

Resource/capability evaluation ................................................................................................. 37

Management Preferences .......................................................................................................... 40

Search plan ................................................................................................................................. 43

Purchase (offer) price estimate ................................................................................................. 52

Financing plan ............................................................................................................................ 58

Integration plan .......................................................................................................................... 60

IV. Conclusion ............................................................................................................................. 62

The Coca-Cola Business Plan

3. Patents, Copyrights, Trade Secrets and Trademarks

income contribution by operating

These competitive beverages are sold to consumers in both Ready-To-Drink (RTD)

As of Nov. 16, 2012

TCCC 2011 Annual Report

1. Threat of New Entrants

companies. The majority of starts up companies have to rely on bottling companies to

In addition, startups and new beverages

TCCC 2011 Annual Report

A Marketers Homage to the Soda Can. Bloomberg Businessweek.

http://www.franchising.com/seven11/ 7-Eleven Franchise Opportunity

companies have been competing intensely since early

recession has arguably affected the sales of these

8. Economic and Political Instability

G. Mission, Vision, and Values

2. Customers perception in terms of:

Maintain a debt/total capital ratio of 50%

TCCC will achieve revenue growth of 7%

TCCC will achieve EPS growth at a rate greater or equal to 7%

Mergers, Acquisitions, and Other Restructuring Activities. Donald M. DePamphilis. 2012

Sales Growth Rate

Gross Profit Margin

Gross Fixed Assets/Sales

Cash Balance / Sales

Other Current Assets / Sales

Current Liabilities / Sales

PepsiCo quenches thirst with Quaker Oats deal. CNNfyi.com.

In the forecast for TCCC, we assumed the tax rate will

continue to be 25% in the next five years.

Resource/capability evaluation section in the acquisition plan). Based on our calculations,

Avg. 4 year Historical

Coca-Cola's Dividend Contortions. http://seekingalpha.com/article/402371-coca-cola-s-dividend-contortions

Market Risk Premium

Moodys A interest rate

Because TCCC is an established company and is in a good financial position with an

Valuation: $35.03 per share

Market Price (as of Dec. 4, 2012): $37.15

II. Acquisition Plan

Coca-Cola FEMSA S.A.B de C.V. (NYSE:KOF)

3. Equity market sources