Market Overview

Coke Moving into Middle East Market

Coca-Cola (NYSE: KO) announced today that it has reached an agreement to buy half of Saudi Arabia's Aujan Industries' drinks business. If you're a Benzinga Pro subscriber, you probably heard about this as soon as the story broke this morning.

The deal, valued at $980 million, gives the US cola maker and distributor a significant inroad to the growing Middle East and North African food and beverage markets. The company had reported back in October that it wished to move into those markets wherever it was strategically possible to do so. Now it seems they have their foothold in the region.

The deal will give Coca-Cola 50% of the Aujan entity that holds the rights to Aujan-owned brands, and 49% of Aujan's bottling-and-distribution company. This makes Coke and Aujan a huge partnership in the growing Middle East marketplace.

This isn't the first time this year that Coke has reached out to overseas facilities and companies to build its international portfolio. In September, Coke announced a 17 million euro investment in France's Les Pennes-Mirabeau facility.

Coke also announced last month that it was investing $2 billion in India, where it hopes to capture market share in a densely populated, fast-growing country. In India, Coke is competing against Pepsi (NYSE: PEP) for market share.

In the Middle East, Coke has jumped out into the lead ahead of Pepsi and other soda makers.

This transaction represents the largest-ever investment by a multinational firm in the Middle East's fast moving consumer goods sector, reflecting the strength of Aujan's operations. Aujan holds a top-three position in still beverages in every country in which it operates and is one of the top 100 companies in Saudi Arabia with total annual revenues exceeding $850 million.

ACTION ITEMS:

Bullish:
Traders who believe that the Middle East is fertile ground for food and beverage growth might want to consider the following trades:
  • Buy Coke. And no, I don't mean the kind that gets you 20-to-life. Coke's stock, already a stable investment, might be even more valuable if the company can capture customer loyalty across the Middle East. This new deal might take them there.
  • Buy Pepsi. If Coke can do it, and do it well, it would make sense that their main competitor might also want in on the action. Even if Coke stays number one, there might be an opportunity to get in on Pepsi before they make a big move in the region (assuming they do make such a move, of course).
  • Consider fast food stocks, such as McDonalds (NYSE: MCD), that might also profit in the region.
Bearish:
Traders who believe that the Middle East move is a bad idea may consider alternative positions:
  • Invest in military supply companies, such as Boeing (NYSE: BA) and Lockheed Martin (NYSE: LMT). Fundamentalists in the region are only going to be upset by America's increasing footprint in the region, leading to the likelihood of more war. Missile and Jet makers such as those two could benefit.
  • If the move backfires, companies like the Dr Pepper Snapple Group (NYSE: DPS) might benefit by remaining here in the states.
  • If Americans trend toward health consciousness AND the move overseas backfires, Coke could be in a bad spot. If so, consider companies that make more wholesome products, like Heinz (NYSE: HNZ) and other juice-making stocks.
Neither Benzinga nor its staff recommend that you buy, sell, or hold any security. We do not offer investment advice, personalized or otherwise. Benzinga recommends that you conduct your own due diligence and consult a certified financial professional for personalized advice about your financial situation.

Sign up for a free subscription to the Weekly Radar - Benzinga's weekly newsletter highlighting technical levels and analysis for major markets for the week ahead.

Posted-In: Long Ideas News Short Ideas Asset Sales Legal Management Global Media Trading Ideas General Best of Benzinga

 

Most Popular

Related Articles (BA + DPS)

Around the Web, We're Loving...

Partner Network

Get Benzinga's News Delivered Free