Value Investing CNBC Interview with Warren Buffett |
| CNBC Interview with Warren Buffett Posted: 31 Aug 2018 10:34 AM PDT |
| Coca-Cola salivates over Costa expansion opportunity Posted: 31 Aug 2018 01:22 PM PDT https://www.ft.com/content/27967280-ad26-11e8-94bd-cba20d67390c Reasons I'm currently not positive on the deal for Coke (subject to further work): - £3.9bn equates to 16.4x LTM March-18 EBITDA, well above research analysts' (generally optimistic) consensus valuation of the business of £2.3bn. How much of the distribution and other synergies did Coke "pay away"? Having dealt with the notorious lead consumer banker at Rothschild before (Akeel Sachak), likely all. He is known for many "great" UK consumer deals including Lindt's acquisition of Thornton's and the Premier Food roll-up before the rights issues and recapitalizations. His involvement alongside the multiple is a red flag for me. - The CEO pointed to 2 reasons why they decided to bring Costa into the Coca Cola family: "(1) coffee is one of the strongest growing categories in the world; (2) Coca Cola needs to expand into coffee and hot drinks". You can watch the strange video announcement here. It seems like a British CEO that knows they need to diversify into hot drinks picked Whitbread's publicly announced "for sale or for spinoff" business as the most actionable target, rather than having any significant draw to the brand or unique value proposition of the business. - The Costa brand is confused in its positioning. It's quite basic in the UK; it's the largest mass market coffee house - supported in large part by it's image as "decent coffee at decent prices", "home-grown" and paying its taxes, unlike Starbucks (whether that's a fair assessment or not is debatable, but that's the consumer perception). It's even moving further down-market to vending machines in the UK. And in China, it tries to position itself as a premium option, with limited success. What Coca Cola plans for the brand is yet to be announced. - The coffee market, although fragmented, particularly in foodservice, is extremely competitive. Joh. A Benckiser (JAB), superb consumer sector operators from the Reckitt Benckiser family, are consolidating the premium end of the market, buying up niche coffee chain brands in the US, Scandanavia and internationally. They retain the brand and feel of the outlets, purely optimising the supply chain and back-office functions of each store, and providing necessary capital for aggressive roll-outs where necessary. Starbucks have also cornered key markets globally. Nestlé have been involved in recent M&A in the space, and dominate coffee sold through retail channels. Competing with these giants with such a small, UK-focused, mixed brand platform is questionable. [link] [comments]  |
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