Why Are Shares of Coca Cola Enterprises Dropping?

Includes: CCE, KO
by: Mark Riddix

Coca Cola Enterprises (NYSE:CCE) looks like Wall Street’s biggest loser today. Shares of Coca Cola Enterprises dropped over 30% from $31.80 per share to $21.97. Why the huge price drop?

The reason for the price drop is that Coca Cola Enterprises is being acquired by Coca Cola (NYSE:KO). Coca Cola Enterprises is the largest marketer, bottler, and distributor of Coke products in the world. The deal involves a special $10 cash distribution payable to shareholders of Coca Cola Enterprises. The $10 special distribution gives Coca Cola the rights to Coca Cola Enterprises North American operations.

This is a pretty sweet deal for Coca Cola Enterprises. The deal involves Coca Cola assuming almost $9 billion dollars in Coca Cola Enterprises debt. Coca Cola Enterprises is gaining Coke’s bottling interests in Norway and Sweden. The bottler also has the right to buy an equity stake in Coca Cola’s German bottling company.

Coca Cola and Coca Cola Enterprises are two distinctly different companies. Coca Cola produces the syrup concentrate and Coca Cola Enterprises bottles theses syrups. Coca Cola created Coca Cola Enterprises in the 80’s as a way of consolidating its independent distribution networks. Coke spun the company off but still retains a 35% ownership interest in Coca Cola Enterprises. The move to acquire the North American distributor’s operations will save Coke substantial sums of money over time.

Disclosure: No positions