Coca-Cola Orders a Health Boost

alvinwoolf

Andrew Farrell and Ruth David 05.25.07, 6:15 PM ET

Coca-Cola, purveryor of sugary soft drinks, is ready for a healthy boost.

With its purchase of flavored-water maker Energy Brands, the company hopes to tap into growing demand from body-conscious consumers.

Coca-Cola (nyse: KO - news - people ) announced Friday that it will buy Energy Brands, which makes the Glacéau line of Vitaminwater. Coca-Cola has agreed to pay $4.1 billion in cash for the privately held company.

Morningstar analyst Matthew Reilly said that Energy Brands: \"Will provide Coke with an innovation platform that could help it capitalize on health and wellness trends as well as bolster its tarnished public image as a purveyor of unhealthy offerings.\"

Drinks like Vitaminwater are expected to become a larger part of the beverage market as Americans, and others, become more health-conscious. Coca-Cola Chief Executive Muhtar Kent said the acquisition helps the company become the \"fastest-growing still beverage company in North America.\"

The move will help Coca-Cola expand its line of noncarbonated beverages at a time when soda sales growth have been sluggish in some markets. The soda-focused Coca-Cola had a rough first quarter in North America, while its more-diversified rival Pepsico (nyse: PEP - news - people ) was able to compensate with its other drinks and line of snacks. (See: \"Cash In Pepsi's Chips.\")

India’s Tata Tea, which has a 30% stake in Glaceau, will receive $1.26 billion in the deal. Tata Tea bought the stake in August last year for $677 million.

Tata Tea’s U.K. subsidiary Tata Tea (GB) Investments held 25% of the stake and its holding company Tata Sons had the remaining 5%.

“We decided that as minority shareholders we should respect the opinion of the management…There was no pressure, we had a cordial relationship with Glaceau,” Tata Tea Vice Chairman R.K. Krishna Kumar told reporters in Mumbai.

Kumar did not rule out the prospect of future tie ups with Coca-Cola, and said Tata Tea would continue to focus on inorganic growth in the Americas in the next few years.

At the closing bell shares of Coca-Cola were up 65 cents, or 1.3%, to $51.89, on the news. Over the past year, the shares have gained 17.4%. While the company has encountered weakness in North American demand, international sales have been strong. Income from Europe and Latin American jumped in the first quarter and helped the company beat expectations. (See: \"Zero Launches Add Up For Coke\")

Other beverage makers also fared well on Friday, including PepsiCo (nyse: PEP - news - people ), which was up 0.5%, and Hansen Natural (nasdaq: HANS - news - people ), which climbed 1.2%.

from: http://www.forbes.com/markets/ec ... _0525markets21.html