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Coca-Cola splits its US businesses, analysts at odds with decision

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December 14
2:59 AM 2013

Late Friday night, Coca-Cola Co announced its decision to separate its North American businesses. The company explained the reason behind the decision to split its US businesses into two units, Coca-Cola North America and Coca-Cola Refreshments, as its strategy to return to its traditional franchising model. The split will be effective January 1 next year.

Aside from separation, Coca-cola also announced some management changes. The new group president for Coca-Cola North America will be J.A.M. Douglas, while the bottling division of the business, Coca-Cola Refreshments, will be headed by Paul Mulligan.

Coca-Cola Co.'s chief executive Muhtar Kent said in a statement, "(With the creation of the new business units), we are in a position to leverage this flexibility to return to a traditional company and bottling operating model in North America. (This) will enhance our focus on execution and accelerate the refranchising of our bottling system in our flagship market,"

Coca-Cola, as compared to over beverage players in the market, has not done well this year. Its stock only gained 8.7%, as compared to Pepsi Co's 18% gain and Monster Beverage's 17% advance. One major beverage company that follows after Coca-cola is Pepper Snapple, which saw a 7.9% this year, a Barron's report noted.

Credit Suisse's Michael Steib said the news provided a new clarity of the beverage company's direction for its investors, and he said, "While these are significant steps, ultimately the goal is to return the North American business to more of an organizational separation of concentrate manufacturer and bottler."

Alliance Bernstein's Ali Dibadj, on the other hand, is questioning the changes. He said, "Does KO believe that a favorable North America operating environment is nonessential to refranchisement, or is it expecting its financial results in this key market to soon improve from here? Could the company be incentivized by other factors (e.g., housing the business under BIG so that it can effectively buy more time to fix the problems that may be bigger than management had previously realized)? Net-net, we believe that the changes may not all be positive despite the indicated possibility of refranchisement acceleration." Dibadj refers to Coca-cola's trading name KO.

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