Embotelladora Andina SA M&A Call - Merger of Embotelladora Andina and Embotelladoras Coca-Cola Polar
Feb 08, 2012 AM EST
Thomson Reuters StreetEvents Event Transcript
E D I T E D V E R S I O N
ANDINA-B.SN - Embotelladora Andina SA
Embotelladora Andina SA M&A Call - Merger of Embotelladora Andina and Embotelladoras Coca-Cola Polar
Feb 08, 2012 / 08:00PM GMT
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Corporate Participants
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* Maria Barona
i-advize Corporate Communications - IR
* Miguel Angel Peirano
Embotelladora Andina SA - EVP
* Andres Wainer
Embotelladora Andina SA - Finance & Administrative Director
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Conference Call Participants
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* Antonio Gonzalez
Credit Suisse - Analyst
* Ernie Guzman
Morgan Stanley - Analyst
* Javier Pizarro
LarrainVial - Analyst
* Ignacio Spencer
IM Trust - Analyst
* Gustavo Fingeret
Banco Itau - Analyst
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Presentation
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Operator [1]
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Good afternoon. My name is [Kelly] and I'll be your conference operator today for the Embotelladora Andina's conference call. Today's call will be conducted in Spanish with a simultaneous translation to English. I would now like to turn the conference over to Ms. Maria Barona of i-advize. You may begin your conference.
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Maria Barona, i-advize Corporate Communications - IR [2]
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(interpreted) If you wish to listen to the call in English, please listen then submit [45613]. Accompanying us from Santiago, Chile, Vice President and Executive Vice President, Mr. Andres Wainer is the Director of Finance and Ms. Paula Vicuna, Finance. At the end of this conference, we will be continuing the merger between Embotelladora Andina and Embotelladora Coca-Cola Polar that was submitted with the press release on February 2nd 2012. If you have not been able to obtain this information, this press release, you can connect it to www.diabloembotelladoraandina.com.
If you have not received them, you can access to this through the web page -- the Company's web page under the information located on the right-hand side of the page. The audio archives under two versions, English and Spanish, will be available starting tomorrow, Thursday and web page of the Company's webpage.
Before we start, I would like to remind you that this call is only for shareholders. And there's call setup that are provided by the person that be answer.
This conditions are subjects and they could defer materials. These conditions are found in the last page with the press release under the section of our legal warnings, I would suggest that you can look at the session for this information. It is a pleasure to present you Miguel Angel Peirano, Vice President of Embotelladora Andina.
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Miguel Angel Peirano, Embotelladora Andina SA - EVP [3]
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Good evening to all of you. It is a pleasure to talk to you once again. And I appreciate your interest for the Embotelladora Andina. To make this presentation in an orderly manner, the way we have made up this presentation, I would make reference to each comments, to each respective pages.
Therefore, if we start on the first page, we can see the description of the transaction. We have signed an agreement so that we can function -- we can merge Andina Polar. It is with the -- this must be approved by the Coca-Cola company. And together with the respective controlling group, we have entered this memorandum. We consider that both institution there will be new opportunity of growth with this transaction.
We'll convert it into the seventh biggest bottling company in the world and South America. We create this regional vehicle. The operation will be made through our shareholders and this way, the -- or the exchange ratio will be 0,33269 Andina Series A shares and 0,33269 Andina Series B, which will be up to the Polar shareholders for about 28% to 29% of the -- 19% to 20%.
Andina and Polar will be distributing dividends amongst the -- shares amongst their shareholders in respect to the time of the exercise 2011 [CLP28.156 million] and [CLP29.566 million], respectively. This represents CLP35 to CLP27 for Series A share and [CLP38.80] for Series B in the case of Andina and CLP105.59 in regards to Polar.
Upon closing with this transaction, the controlling shareholder of Polar will become part of -- with shareholders of the Coca-Cola within the region. And finally, we'll wait for the annual net product of $25 million to $30 million that will be -- would then solve the 24 months.
This association positions us as one of the leaders of the regions which is a very important for -- value to our shareholders, our clients, consumers and collaborators. There's also a platform that is created for the Coca-Cola system for Latin America.
Now we're going to go to page two. And I know that the majority of you are familiarized with Andina and with Polar. And a continuation, I would review the entity after its merger. This consider us and it places us with the highest, the biggest within the region, the second in South America, and the third in Latin America.
The combined company shows around 641 unit cases approximately in September of 2011, it includes a territory or 48 million for potential customers. It is important to note that we'll be supported by different franchises in four countries in the countries with high expectative of growth.
We wait and amongst the main cities, such as, Santiago, Rio de Janiero, Cordoba and Asuncion. In addition, on each one of those territories, they will be operating will be -- have big marketing process. As we could appreciate in the map, this transaction with the (inaudible) in [South con] will contribute other territories, which generates a possibility of adding more cooperative.
Going into page three, and as I explained, the combined company will share 41,000 million unit cases and [$2.063 million] of revenue within the past month. In terms of participation of each part, Andina represents the 77.8% volume and 68% in sales -- in share sales with both.
And operating, the combined companies will have a total of 10 bottling company, of production company and it will cover a population of $48 million throughout the four countries from which it operates.
Going to page four, we can see that the combined companies represents a balance, diversification in terms of geographic terms and volume, sales, and entity. The city of Brazil, it represent 30% to 67% for each in regards to each category. And whatever is generated by the operations in Paraguay and Argentina, the company -- the combined company more than [6 million, 400 million] in the last -- [464] in the last 12 months at the end of September 2011, where we have a net revenue with very significant presence in the countries for which we operate, to which convert us in a vehicle with big perspective for growth within the region.
Go on to page five and explaining the logic of this merger, there exist various points that I would like to review. And it explains the different recreation of value that explains this transaction to all the parties involved. First of all, to preliminarily is the synergy as I explained in regards to the $25 million to $30 million per year within 12 to 24 months after the merger, this synergy represents the 4% to 5% of the Polar sales, which is in line with the actual transaction.
And in reality, and is another area for which I would like to specifically focus, because we have to keep in mind that this merger generates an important presence within the territories, which is key to improve the synergies that you find in this country. The merger within the two companies will help us with sales and distribution to which it will translate into efficiency and competition and cost.
Second phase, this transaction represents the combination of two world class companies. Both companies show a long history of (inaudible) industry to which enables both company to function within this company as one company. And then, we'll also -- it will also help us to renew and to better the service to our key clients.
Lastly, and it's but not least is the scale and the presence of this new company in this region with the capacity, operational capacity. And the trajectory of its equipment will position us in a very attractive vehicle that will allow us to grow rapidly. This transaction will be an ideal platform to create more opportunities for growth and a potential presence within the territories for which we operate.
If you can please move on to the next -- following page, and following the points that we have, such as the one I commented with, this transaction have formed a vehicle of creating values. The company with very important (inaudible) with each country and each border combined is the largest bottling company in Chile, the second bottling Coca-Cola company in Brazil and Argentina, and the only bottling -- the largest bottling in Paraguay, which will allow us to continue growing in this region when we -- and taking advantage of the territories that we take -- we serve.
And the combined company will have a growth for -- after the dividends of payment as part of the transaction. And the high capacity of -- create this includes people within the Coca-Cola system with (inaudible) in working on this industry, the sensibility of capital structure, with actions not only in Santiago, but we are -- and a value near the $4 million -- $4 billion, which will continues the growth and to continue facing a position with this -- within the region, as we mentioned earlier, the group Polar (inaudible) will incorporate the group (inaudible) Andina. Then it will be a fifth member of the (inaudible) will join the Andinas company.
And lastly, this transaction, it will be a win win to all of the actors involved, shareholders, clients, consumers, providers, and collaborators. So the combination of two excellent operators of the system, they will be able to capture the synergy, the potential for Coca-Cola product, and to create a platform, original platform that would provide us and to capitalize with each opportunity.
With this, I finish my presentation. And I will give you Maria. Thank you very much.
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Questions and Answers
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Maria Barona, i-advize Corporate Communications - IR [1]
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(interpreted) Thank you for your attention. Now we're going to ask for the question-and-answer. (Operator Instructions). And number two, please make -- if you can ask a question and take your time so we could allow for the interpretation.
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Operator [2]
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(interpreted) Yes, at this time we would like to open the floors for questions. (Operator Instructions). Our first question comes from Antonio Gonzalez with Credit Suisse.
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Antonio Gonzalez, Credit Suisse - Analyst [3]
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(interpreted): Good afternoon. Thank you for taking my question. And congratulation for this transaction. The first thing that I would like to ask you, if you can provide us more details and the synergy starting -- in the case of Chile, can you remind us what would be the capacity of the bottling company that you would place in Santiago?
And will there be a space to grow and to the -- or because of the Chilean geography, this will be impossible. Are you still thinking of keeping the bottling company in Chile that it's -- that comes from Polar association?
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Maria Barona, i-advize Corporate Communications - IR [4]
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Kelly, your speaker is open.
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Unidentified Company Representative [5]
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(interpreted) In regards to the details of the finances in the particular case of Argentina for the continuity and -- within the territories because the territories are -- is very important synergy. The case is in Chile, the territories is not -- they're not adjacent.
And the synergy without -- there is synergy without doubt, but not the productive part. In regards to the plant rental and the plant, once it is functioning here in Santiago, it will be bottling plant with capacity for many years and with a possibility to expand the capacity. But it's actually, the production that it has now, the space so that we can add more.
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Antonio Gonzalez, Credit Suisse - Analyst [6]
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(interpreted) Thank you. And the second question I would like to ask you is in regards to the structure, the post transaction of the shareholder, can you help us understand the control group of Polar and the Coca-Cola Company? Do they have any type of blackout or can they sell their shares immediately in the market? Or how can this work moving forward? And will it create -- would you create one more seat on the board to include the Polar group? Or will you replace one of the actual seats that you now have?
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Unidentified Company Representative [7]
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(interpreted) In regards to the question, the family Chadwick Claro. They will have a seat in the control group. So it will grow from four to five. The identical conditions that the four have now within the company so it will be from four to five. And yes, there is a blackout period and on shares Type A.
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Antonio Gonzalez, Credit Suisse - Analyst [8]
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(interpreted) Perfect, thank you very much. And I congratulate you for the transaction.
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Maria Barona, i-advize Corporate Communications - IR [9]
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(interpreted) (Operator Instructions).
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Operator [10]
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(Operator Instructions). Our next question comes from (inaudible) with Morgan Stanley.
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Ernie Guzman, Morgan Stanley - Analyst [11]
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(interpreted) Good afternoon, [Ernie Guzman]. I have a question in regards to Polar. I was looking at the margins that Polar has for each country. And we see that in Argentina specifically, the margin is closer to zero, way below Andina. Can you provide us with more detail as to what is the reason as why this margin is lower? And is it something that you can fix or better with the synergy of -- with Andina?
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Unidentified Company Representative [12]
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(interpreted) Yes. In regards to the margins of last year for Polar, I was not -- I'm not going to refer to the past, these margins in particular. But I can confirm that in the future from now until the future, we'll see that together, we'll have a potential synergy. And it depends on us on taking it. And no doubt that improve not only Polar, but also Andina.
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Ernie Guzman, Morgan Stanley - Analyst [13]
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(interpreted) So combined, you don't see a reason the margin in Argentina will be lower, what Andina has in the present?
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Unidentified Company Representative [14]
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(interpreted) We'll see during the period that once we have a defined number. And of course, the synergies we talk about the case in particular of Andina, but it's clear that the sum of both be larger than what they have independent -- they would have independently.
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Ernie Guzman, Morgan Stanley - Analyst [15]
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(interpreted) And another question is related to Chile, you can see that there's a difference. I would like to see to the Polar territory, there was harder on the distribution and what opportunities are there so that the margin of the franchise in Chile combined would be the same as what you have -- you actually have? Or how is that going to work?
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Unidentified Company Representative [16]
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(interpreted) Yes, here it applies the same answer as in Argentina and Chile, even though the territories are not together, but the marketing, the synergy and buying in other areas in the same way that the sum of the part individually will be in coordination more than when it was done in the past.
The geographic territory, which is more -- it's a bigger territory with the Andina territory, but the sum of both will be more, according to the synergy, where they're being done together than independently.
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Ernie Guzman, Morgan Stanley - Analyst [17]
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(interpreted) The last question, having done this transaction, what visions do you have now for future transactions? What possibilities -- are there other transaction within short or long term?
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Unidentified Company Representative [18]
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(interpreted) As in the past, we will continue analyzing all those opportunities that would add value to our companies, our shareholders, and all the participants.
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Ernie Guzman, Morgan Stanley - Analyst [19]
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(interpreted) I'm sorry, one last question. In terms of closing the transaction, do you have an estimate as to when -- how long this process will take?
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Unidentified Company Representative [20]
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(interpreted) Yes. As I was saying, we're entering into the process of due diligence. It will last until mid March, per which all the transactions, such as permits and authorization for the company. And we estimate that we'll -- that we can start the process of merging.
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Ernie Guzman, Morgan Stanley - Analyst [21]
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(interpreted) Thank you very much.
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Maria Barona, i-advize Corporate Communications - IR [22]
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Kelly, we can take the next question.
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Operator [23]
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Our next question comes from the [Javier Pizarro] with LarrainVial.
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Javier Pizarro, LarrainVial - Analyst [24]
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(interpreted) Good afternoon. Congratulations for the transaction. First of all, this line, it's like before basically [SAN] will be -- would it reach margin in Argentina that are similar or larger to the sum -- Andina has now and the 2% and 15% of what Andina has in actuality. And there's the big difference now. Wouldn't it be in -- how long were you able to reach the similar level as Andina presently has?
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Andres Wainer, Embotelladora Andina SA - Finance & Administrative Director [25]
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(interpreted): Hello, [Javier]. Is Andres my name. Listen in Argentina as you say, the margin of Polar are very low than Andina with -- as the same way that Miguel had to explain, we're going to start working immediately to try to get -- obtain the synergy that we're commenting the margins, the combined margins
To reach the margin that Andina has now, it will be difficult to justify by the margin -- a combined margin of the two operations in Argentina. It will be very good. And we'll incorporate the synergy that we're talking about hence since Argentina continues a territory, the synergy will be good and also centralized purchasing, and eventually with [T&A].
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Javier Pizarro, LarrainVial - Analyst [26]
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(interpreted) Very well. In respect to the operations in Paraguay, I see the margins, the 30%, 10% to 20%, 20% in September. What would be the margin? Why is the margin so high comparable to other bottling company? I don't know if it's the volume for this one or is it the market that is sustainable, between 20%, 30% on the northern part?
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Andres Wainer, Embotelladora Andina SA - Finance & Administrative Director [27]
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(interpreted) Yes, there's no doubt that we'll try to learn what they're doing in Paraguay, so that we can extrapolate the best practices within the territories and we can get --
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Javier Pizarro, LarrainVial - Analyst [28]
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(interpreted) This will solve the -- you're obtaining perhaps (inaudible). You see that it's (inaudible) at the moment for Polar and now that they're merged together.
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Unidentified Company Representative [29]
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(interpreted) I think that in regards to the level of how sustainable -- it would be sustainable or not, the result of Polar will be providing the market, I guess I will have to ask definite. It's an operation that is very efficient. And there's no doubt their objectives is to perhaps to better the interchange practice -- the change of practices, the better processes that's being done in each place. Thank you very much.
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Javier Pizarro, LarrainVial - Analyst [30]
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(interpreted) Thank you very much. I have two last questions, very brief questions in regards to Polar. Polar (inaudible) is provided more detail with regards to the Polar is investing this year and next year. Thank you.
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Unidentified Company Representative [31]
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(interpreted) And Javier, we will provide you with more details in regards to Polar. And they're paying less taxes because they have a lot of losses in the case of Argentina.
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Javier Pizarro, LarrainVial - Analyst [32]
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(interpreted) Thank you very much.
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Maria Barona, i-advize Corporate Communications - IR [33]
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(interpreted) Thank you. I would just like to remind you that we will take questions from the media if you contact us later. (Operator Instructions). Thank you.
Any more questions?
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Operator [34]
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Yes, our next question will come from Ignacio Spencer with IM Trust. Sir, please check to make sure your line is not on mute.
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Ignacio Spencer, IM Trust - Analyst [35]
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(interpreted) Good afternoon. I would like to know if in 2011, 2012, if you're referring to materialized synergy would be a cost undoubtedly. There's always a cost, but it's insignificant, but they're relevant in regards to the synergy. The other thing is $530 in synergies, such in Argentina, which is like a 50% -- how would you distribute that for each country? Thank you.
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Unidentified Company Representative [36]
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(interpreted) Ignacio, there's more -- the part of Argentina is [lower first] mostly in Argentina and Chile in regards to -- were not in conditions that are 50%, but we're not far from that number. Thank you very much.
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Maria Barona, i-advize Corporate Communications - IR [37]
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(interpreted) (Operator Instructions).
Any more questions, Kelly?
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Operator [38]
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Our next question comes from Gustavo Fingeret with Itau.
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Gustavo Fingeret, Banco Itau - Analyst [39]
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(interpreted) Good afternoon. The question is in related to the possibility of a risk so that if the merger does not become [forego] because there is no closing up [competence]. And there are no regulators, but in the market, if you can explain this as to how would this affect the market if this merger goes through?
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Unidentified Company Representative [40]
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(interpreted) Yes, we don't see in the horizon risk that this transaction will not take place. And we have always done it. And we are disposed to provide any information that is required from the regulators even though that when I (inaudible) it will be the sale of the same products in different territories. So there's -- that does not define any product in regard to the competitor. Thank you.
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Maria Barona, i-advize Corporate Communications - IR [41]
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(interpreted) We have one more person on line on the phone.
Kelly, we can proceed with another question.
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Operator [42]
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(Operator Instructions).
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Maria Barona, i-advize Corporate Communications - IR [43]
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(interpreted) (Operator Instructions). Are there any more questions?
Okay, turn back, Kelly.
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Operator [44]
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This concludes this teleconference. Gentlemen, do you have any closing remarks?
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Maria Barona, i-advize Corporate Communications - IR [45]
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(interpreted) At this time, there are no more questions. Are there any final comments?
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Unidentified Company Representative [46]
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(interpreted) Only that once again, I would like to thank all of you for the interest on Andina and to wait for the next conference so we would keep provide you with the results when it's appropriate. Once again, thank you very much. Thank you for being present here. And thank you for your interest in Andina.
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Maria Barona, i-advize Corporate Communications - IR [47]
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(interpreted) Thank you for all of you for participating. This meeting has concluded. Thank you for participating. You may now disconnect. Thank you.
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Editor [48]
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Portions of this transcript that are marked (interpreted) were spoken by an interpreter present on the live call. The interpreter was provided by the Company sponsoring this Event.
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