Coca-Cola, Zydus Cadila battle for Kraft Heinz India brands
The Coca-Cola Co., the world’s largest beverage company, and the Zydus Cadila Group have emerged as the two strongest contenders for the consumer portfolio of Kraft Heinz in India, which includes the children’s milk drink Complan, people with knowledge of the matter said.
The two are expected to submit binding bids in the coming days amid final negotiations. In August, Kraft Heinz had narrowed the list of bidders for a second round of talks and shortlisted some of the biggest food and consumer companies including Tata Group, Wipro Consumer, Dabur India and Danone along with Coca-Cola and Zydus Cadila.
However, a sprawling product portfolio, Complan’s uncertain growth prospects and regulatory hurdles have led to most either opting out or waiting for future carve-out opportunities.
Nestle, Emami and ITC were the other contenders that had explored the opportunity but were either not shortlisted or didn’t want to participate after initial evaluations.
Kraft Heinz has been seeking about $1 billion for the assets and had mandated investment bank JP Morgan earlier this year to manage a formal sale process.
But potential bidders have balked at the valuation as they feel shifting consumer tastes and preferences may not be kind to brands such as Complan and Nycil talcum powder, sources said. Bids are mostly expected to be in the $550-600 million range, they said.
The Atlanta-headquartered cola giant is expected to be the more aggressive of the two, having acquired the Costa Coffee chain from UK leisure group Whitbread last week in a $5 billion deal to take on Starbucks, Nestlé and JAB Holdings. Coke in India is also in pursuit of GlaxoSmithKline Plc’s consumer nutrition business, which owns malted milk brand Horlicks, that is up for grabs for an estimated $4 billion.
If a deal is struck, it will be the first big acquisition by Coca-Cola in a key market after it bought Parle’s beverage brands, including Thums Up, in the early 1990s.
“In India, as is the case globally, the core soft drink sales business remains sluggish. The strategy is to acquire established or highpotential brands in the non-soda beverage space, to take share in fast-emerging spaces of healthbased hydration,” said an executive familiar with Coke’s plans.
Entry into products such as glucose, its key target, and milk-based drinks would give Coca-Cola bandwidth in new distributor channels as well, the person said.
For Ahmedabad-based Zydus Wellness, the listed consumer business subsidiary of Pankaj Patel-led Zydus Cadila Healthcare, the Kraft Heinz portfolio will add to its existing offerings of personal and skin care, sugar substitutes and health foods. The business, accounting for 4% of the Zydus Cadila Group’s total revenue, grew 7% in FY18 from the year earlier. The three mainstay brands — Sugar Free, Everyuth, and Nutralite — registered faster growth despite challenges such as the rollout of the goods and services tax (GST), analysts said.
“Sugar Free maintained leadership position in the artificial sweetener category with a market share of 94.2%, a decline of 30 bps YoY,” according to Edelweiss Securities analyst Deepak Malik. “Everyuth maintained leadership position in the peel-off mask and scrub categories with market shares of 86% and 33.6%, respectively. Nutralite continued to register strong volume growth during the year.”
Zydus Cadila is the country’s fourth-largest Indian pharmaceutical company with Rs 11,600 crore in FY18 sales.
With consumer beverage preferences changing swiftly in favour of low-sugar or functional options such as juice and juice drinks, flavoured water, dairybased beverages and tea, food and cola companies like PepsiCo and Coke or even over-the-counter (OTC) pharma players like Zydus Cadila have been accelerating portfolio expansion beyond core brands into the fast-growing wellness segment.
T Krishnakumar, president of India and Southwest Asia operations of Coca-Cola, told ET in May that it would launch nutrition products including electrolyte hydration drinks to be sold over the counter at pharmacies.
The maker of Thums Up, Minute Maid juice and Kinley water has been stepping up launches in the ‘healthier’ space including nosugar variants of Coke, Sprite and Thums Up, Vio dairy drink, Zico coconut water, Aquarius fortified water, Fuze iced tea, glucose and fruit juice drink Aquarius Glucocharge and Minute Maid Vitingo for micronutrient deficiency and malnutrition, besides hyperlocal variants of juices and juice-based drinks. Globally too, the company has bought or invested in millennial-friendly brands such as Honest Tea, Suja Life, a cold-pressed juice maker, and AdeS, a soya-based beverage brand.
Similarly, Zydus Wellness has launched Actilife — a low-fat, health drink. Company executives have maintained that acquisitions will be a growth strategy in its key markets of India, West Asia, Africa and Southeast Asia.
Analysts also cite headwinds such as taxation issues and possible labour unrest as possible challenges that will face the acquirer.
“The main pull is for Glucon D but that too is in a fierce category with competitors like Dabur that are cheaper by 20% MRP (maximum retail price),” said a Bengaluru-based consultant. “In Complan, a major crackdown on advertisements and claims are expected and often the cases land up in court. Additionally the popular Heinz ketchup brand won’t be part of the sale and will have to be carved out.”
Source: Economic Times