Coca-Cola Is in Deal Talks With [bottled water company] Glaceau

Wall-Street Journal, Betsy McKay - Coca-Cola Co. is in talks to acquire or buy a stake in Glaceau, a fast-growing maker of bottled water enhanced with flavorings, sweeteners, vitamins and minerals.

No deal has been reached between the Atlanta beverage maker and closely held Glaceau, of Whitestone, N.Y., and negotiations still could fall apart, according to a person familiar with the situation. The entire company could be valued at more than $2 billion, since a 30% stake in Glaceau was sold in August for $677 million to Tata Group, an Indian conglomerate that also owns Tetley tea. Since then, Glaceau has continued to increase its volume at an impressive rate, which could push any purchase price even higher.

According to Beverage Digest, an industry newsletter that earlier reported the talks, it isn't clear whether Coke wants to own Glaceau outright or just purchase a substantial stake. Glaceau makes the popular Vitaminwater brand that helped pioneer and popularize enhanced water, one of the industry's hottest categories.

Glaceau could be a good fit for Coke as it tries to reverse sales declines in its U.S. business and improve its nonsoda lineup. Coke has been working to develop new waters and teas internally, while ramping up its search for acquisitions. In February, for example, Coke acquired Fuze Beverage LLC, an Englewood Cliffs, N.J., maker of energy, tea and vitamin-enhanced drinks.

The company also has held talks with executives at Arizona Beverage Co., Lake Success, N.Y., about the possible acquisition of Arizona teas, according to people familiar with the situation. Representatives of Arizona Beverage and Glaceau couldn't be reached to comment.

Coke may have to pay a rich price to get Glaceau, but the company offers Coke one of its last remaining options to accrue instant heft in the enhanced-water category. Glaceau, launched in 1996, is still led by J. Darius Bikoff, its founder and chief executive.

In a conference call with analysts and investors last week, Coke's president and chief operating officer, Muhtar Kent, said the company is "using M&A to augment scale and capabilities" in its North American business and that it will "strategically add on any bolt-on acquisitions."

Enhanced water has become increasingly popular among consumers looking for beverages that aren't as heavy as soda or juice but that still offer more flavor than plain bottled water. According to Beverage Digest, Glaceau's volume in 2006 more than doubled to 77 million unit cases. A unit case is the equivalent of 24 eight-ounce bottles.

Acquiring Glaceau "would help fill a big gap" in Coke's North American business, giving it a well-known brand in a segment that is expected to account for 22% of North American beverage revenue during the next five years, ranking behind only bottled water, Bill Pecoriello, a Morgan Stanley analyst, wrote in a research report.