Analyst: Coke, bottler to reach deal by year-end

NEW YORK - A Morgan Stanley analyst told investors that Coca-Cola Co. and its biggest bottler, Coca-Cola Enterprises, are likely to form a supply-chain management company by the end of the year.

"We see investors acting positively toward the renewed 'harmony' given the reaction to (Coca-Cola's) actions toward CCE in the fourth quarter," analyst Bill Pecoriello wrote in a research note Monday.

Coca-Cola Co. did not immediately return a call for comment on the idea, which it had not mentioned previously.

There were signs the two companies were negotiating their relationship as consumers grew skittish from economic uncertainty. For instance, Coca-Cola raised the prices it charges bottlers for concentrate, following a price hike earlier in the fall by the bottler, and Coke's chief financial officer stepped down from the bottler's board.

The higher prices gave Coca-Cola an additional $100 million to spend on promotions in the quarter, Pecoriello told investors on Oct. 23.

That same week, Coca-Cola Enterprises named a former Coca-Cola executive, John Hunter, to replace Coke CFO Gary Fayard, who had served on CCE's board since 2001. The fortunes of the two companies are closely linked.

As far as strategic alternatives, Pecoriello had said late last month that Coke clearly did not want to buy Coca-Cola Enterprises. He said then that a key obstacle was the fact that "Coca-Cola Enterprises has to maximize value for its shareholders, and it might not be willing to give up parts of its U.S. territory and/or Europe," the analyst wrote.

Shares of Coca-Cola rose 93 cents to $46.38 as the Dow rose 300 points on election day. The bottler's shares rose 52 cents, or 5.2 percent, to $10.43.

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