The deal also brings former Coca-Cola executive J. Darius Bikoff back into the fold, along with two other top Glaceau executives, all of whom have agreed to stay on for at least three years after the deal closes.
Rather than bring them back to Atlanta, however, Queens, N.Y.-based Glaceau will be operated as a stand-alone unit, with Coca-Cola adding its distribution, manufacturing and marketing muscle, executives said in a conference call with analysts May 25.
Sales of the trendy Glaceau weren't disclosed, but Reuters cited an executive familiar with the company saying it had 2006 revenue of $355 million and is forecast to reach $700 million a year. That would give the company an almost unheard-of-for-package-goods multiple of six times current sales and more than 10 times trailing sales.
But very few, if any, brands in the industry, particularly ones with nine-figure sales, also have triple-digit growth as Glaceau does. And the market didn't appear to believe Coca-Cola overpaid, sending the company's shares up 1.3% to $51.89 on Friday.
Conservative growth forecasts
Coke executives said they believe Mr. Bikoff and company actually have been quite conservative in their growth forecasts. "The combination of Glaceau's brands and culture of innovation with the Coca-Cola Co.'s global scale and marketing muscle creates really a winning offering," said Muhtar Kent, president and chief operating officer of Coca-Cola on the call.
Vitamin Water recently attained share leadership in its category, "yet there is still significant opportunity to expanding regionally, while expanding still sales velocity," Mr. Kent said. Sales remain relatively concentrated in the Northeast, but he said he sees opportunities to grow rapidly elsewhere in the U.S. and globally.
And while Coca-Cola executives said they expect marketing spending on Glaceau to grow, J. Alexander Douglas, president of Coca-Cola North America, said the company already had an ambitious marketing plan in place ranging from "the grassroots all the way up to TV advertising."
No need to reposition brands
Mr. Douglas added that he sees no need to reposition the brands to help differentiate them from current Coca-Cola offerings.
"We have 100% governance and management authority over the decisions of [Glaceau]," he added, despite the pledge to run the company as a separate unit. "Now, I say that with the full expectation that our core policy will be to enable the entrepreneurial spirit of the operating unit in New York. But as to where the buck would stop, clearly that will stop with us in Atlanta."