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Coca-Cola Bottling Co. (COKE) is the second largest Coca-Cola bottler in the United States. But after Coca-Cola’s (KO) recent acquisition of Coca-Cola Enterprises’ (CCE) North American business, COKE may now be the largest independent Coke bottler in the United States. With all the recent consolidation, is it possible that Coca-Cola may choose to acquire Coca-Cola Bottling as well? After all, a key objective for Coca-Cola is to bring sustainable growth back to a weakening North American market. Consequently, acquiring Coca-Cola Bottling may further improve overall supply chain efficiency.

According Coca-Cola Bottling’s most recent 10-K filing, The Coca-Cola Company currently owns approximately 27.1% of Coca-Cola Bottling’s total outstanding common stock and Class B common stock on a combined basis. In terms of bottling territory, the total population within Coca-Cola Bottling’s bottling territory is approximately 20 million. The company also has approximately 5,200 full-time employees, of whom only 420 were union members.

2009

2008

2007

2006

2005

Net Income (Millions $)

$38.14

$9.09

$19.86

$23.24

$22.95

Re-adjusted

$21.9

$19.2

Coca-Cola Bottling does have $537.9 million in long-term debt with only $14.3 million in cash and short-term investments as of fiscal end 2009, in addition to a post-retirement benefit obligations liability of $89.306 million. However, the company does have satisfactory earning power and cash flow generation, and $538 million would not be substantial if Coca-Cola were to acquire the company. Moreover, Coca-Cola Bottling Co. is continuing to improve their financial position, which includes the reduction of over $500 million in long-term debt during in the past decade.

J. Frank Harrison III, Chairman of the Board, Chief Executive Officer, and controlling shareholder clearly affirms,

During the past two years, we have focused heavily on reducing costs and driving efficiency in our business and have achieved great success in this area. With this discipline firmly in place, the company will shift more of its focus to growing our gross margin, and we believe we are well-positioned to capitalize on economic improvement in 2010.

Over the last four years, the company has developed and begun to market and distribute its own brands. These products include Country Breeze tea and Tum-E Yummies, a vitamin C enhanced flavored drink for kids. In addition to bottling, marketing, and distributing Coca-Cola products, it also holds agreements to distribute Dr. Pepper and Monster in certain regions.

Even without a Coca-Cola acquisition, Coca-Cola Bottling Co. appears poised to continue as a going concern as well. With a market capitalization of approximately $500 million, the company seems to have the leadership capability and strong principles required to continue to generate significant cash for shareholders and to reduce their long-term debt over time. The only question for the investor is a P/E of 14.4 the right valuation to make Coca-Cola Bottling a buy?

Disclosure: The author is long KO at the time of writing.

Source: Coca-Cola Bottling: Another Possible Acquisition Target for Coke?