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Amanda Carullo May 16th, 2016
Professor Li BU-5540-001
COCA-COLA’S ACQUISITION OF GLACÉAU
1:
In 2007 Coca-Cola purchased Energy Brands Incorporated, more commonly known under their
DBA name Glacéau, for 4.1 billion. Glacéaus has three products on the market, with their most
popular product being their line of Vitaminwaters. Energy Brand was a smart, lateral investment
for the biggest beverage company in the world. Soft drink industry leader, Coca-Cola, has been
successfully operating for over a century. Now well into their maturity phase, has begun to
flatten out. When consumers became more conscious of their eating habits and opt for healthier
choices, sent Coca-Cola heading towards a decline in sales. Coca-Cola Chairman and Chief
Executive Officer, Muhtar Kent, needed to prepare to diversify their portfolio to balance out
potential losses. [4] The following is a closer look at the prospective company, illustrating why
the acquisition was beneficial to the largest beverage company in the world.
2:
CEO John Bikoff founded Energy Brands in 1994. He was born in the early 1960s and grew up
in Sands Point, Long Island. In 1996 Energy Brands began doing business as Glacéau Water
Company. He built the company from the ground up, without experience in the beverage
industry, aside from briefly working in an aluminum can factory, in the midst of filing for
bankruptcy and going through a divorce. [6] Despite his adversities, the founder was an
innovative genius. he was the first to think-up and implement his vision plan, the simple concept

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of taking water and making it better; which became the foundation for the company’s multiple
product line, business model, and marketing strategy.
Fortunately, execution of Bikoff’s start-up plan required production and distributive resources,
all of which were within his capabilities. In two years Energy Brands successfully manufactured
the company’s first product, Smartwater, doing business under Glacéau, which is different than
regular water because of its distillation process and its artificial enhancement of electrolytes.
Two years later, in 1998, Bikoff expanded on his original idea creating a line of Smart Water
diffused with different fruit flavors, clearly naming it “Fruit Water”. Shortly after, Glacéau’s
most successful product line followed with the release of Vitaminwater, launching in 2000. [6]
The company’s business plan for distribution was cleverly implemented. Energy Brands was
about to become the leader in enhanced bottled water. This niche industry appealed to the
health-conscious market segment. The company’s growth phase was extremely successful over
the next few years. First, Smartwater was introduced individually, from store to store, initially
marketing itself to independent health food stores around the New York City area. As the newer
products came out and sales gained momentum, distribution expanded. Fruitwater was released
in 1998 adding privately owned. "mom-and-pop” stores throughout New York State. Shortly
followed Vitaminwater, released in 2000, they used the same expansion methods to venture
throughout the tristate area. By 2001, Glacéau products were sold in over 4,000 retail stores.
That’s when Energy Brands, according to Bikoff, was really able to take off. This strategic plan
enabled his products to go unnoticed by the large beverage makers until the product was firmly
established, when he could then, “cultivate relationships with various independent distributors
opening the way for nationwide distribution.” [1] By 2002, Glacéau was the top-selling enhanced
water brand in the United States with Vitaminwater being its best-selling product. [4]

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5:
Coca-Cola has wanted to diversify their portfolio with noncarbonated soft drinks. Sales in the
soft drink industry have been flat for years now and the sales of noncarbonated beverages have
been growing much faster than soda in the United States in recent years. Millennials do not
prefer soda as much as the baby-boomers once did. Therefore, as baby-boomers retire and
millennials take stronger influence over the market, the demand for the traditional line of
carbonated, soft drink beverages is decreasing. Energy Brands is a tempting option with their
three beverage line of Smartwater, Fruitwater, and Vitaminwater, they are just what Coca-Cola
was looking for. “It would fill a major gap in its noncarbonated portfolio,” Mr. Pecoriello,
Morgan Stanely analyst, said in a note to investors. [5] What made Energy Brands stand out as
an ideal candidate was their smaller size in comparison to their quickly acquired popularity,
which waged high expectations to their future earning potential. Glacéau was only distributing
their products domestically, at that point, and it was within Coca-Cola’s capabilities to bring
their prospective subsidiary to the next level. Branching out to a bigger platform allowed
Glacéau to reach beyond the US market, paving room for international growth and development.
I believe that was what Coca-Cola gave extra consideration for when they inevitably acquired the
company. .
Their marketing team is genius, which is what I’d have communicated to influencing
shareholders of Coca-Cola had I been in the position, every facet of its design, from the
product’s name, to the flavors’ names. The drinks are in an array of eye-catching, aesthetically
pleasing, bright colors. The bottle’s text gives a pharmaceutical feel and has witty messages
written on each giving it an edgy, unique appeal. [6] Vitaminwater’s mission statement market’s
them as healthy, including the catch-phrase, “inspired by nature, enhanced by science” making

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themselves sound not only naturally good for you but scientifically enhanced with vitamins to
make it the optimal selection amongst competitors as the healthiest choice .
New York Rapper, Curtis “50 cent” Jackson, saw the potential of Glacéau’s Vitamiinwater when
he agreed to an endorsement deal in 2006. He acted as a spokesman and was afforded his own
flavor, ‘formula 50’—grape, in exchange for an undisclosed percentage, minority stake, in the
company. This was when 50 cent was at the height of his career and was heavily into fitness. 50
cent’s new endorsement deal was bound to bring in future cash flows, another intangible asset
beneficial to Coca-Cola upon the Glacéau acquisition. [1]
3&7:
According to Coca-Cola Company’s 2007 10k, found on Coca-Cola’s consolidated balance sheet
and note 20, consideration in the amount of 4.1 billion dollars for 71.4% interest in Energy
Brands, DBA Glacéau, on June 7, 2007. Of the 4.1 billion 2.9 billion was in cash on that date, at
which time executives re-invested approximately 179 million in common stock at market price
back into Coca-Cola. The remaining 28.6%, owned by the Tata Group, entered into various
derivatives, put and call options, in the amount of close to 1.2 billion. As discussed this semester,
the 1.2billion in options was included as additional cost of consideration towards the investment,
which Tata Group exercised 5 months later, at which point Coca-Cola owned 100% of Energy
Brands. Net asset value wasn’t given exclusively, but also indicated in class, fair value of net
assets equals acquisition price less goodwill which was reported in the notes, along with other
intangible assets. [as seen on next page]
—Net asset Value 1.9 billion
Intangible Assets:
—Trademark 2.8 billion
—Customer Relations .2 billion

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—Deferred Tax Liabilities .9 billion
— Goodwill 2.2 billion
4:
Coca-Cola and Glacéau had a successful collaboration. There was not any anti-trust concerns
during the acquisition of the company. James a Keyton, anti-trust litigation specialist, was among
the team of attorneys facilitating the transaction and verifying its authenticity. [3] There was full
compliance of the anti-trust statutes but some were suspicious of the consideration given by
Coca-Cola. They purchased the company, evaluated the year before, at 2.2 billion and 350
million in annual sales, for over 4 billion. Coca-Cola may have been better off just buying its
own shares. The price-to-sales (P/S) ratio of 11.7, for purchase price compared to just sales, not
profits, is more than 10 times the ratio it cost for the deal. [4] Glacéau’s agreement stipulated to
have freedom in their subsidiary’s operations, artistic freedom and control over management and
production. Many thought that Coca-Cola overpaid, something that rarely happens in ‘big
business’ transactions, this was the only event that raised eyebrows during the acquisition. [4] In
a statement, E. Neville Isdell, the chief executive of Coke, responded: “Glacéau has built a great
business with high-quality growth, as well as a strong pipeline of innovative products and
brands. We envision even faster growth for Glacéau as part of Coca-Cola’s enhanced range of
brands for North American customers and consumers.” [5]
7:
Coca-Cola announced a change in Glacéau distribution model which resulted in an estimated
.2 billion in liabilities to terminate existing Glacéau distribution contracts. The plan was to
transition by using established Coca bottling systems, so that Glacéau was mainly
manufacturing. Coca-Cola wanted to own most of the distribution channels. Therefore, .2 billion

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in anticipated liabilities adjusted the original allocation of acquisition costs. A majority of the
contracts were terminated within the 4th quarter of the initial year of acquisition for less than the
amount, and the remaining contracts planned to be executed in the first quarter of 2008,
according to Note 20—Acquisitions and Financial Statements. It can be seen on Coca-Cola’s
consolidated balance sheet {attached} that the Glacéau investment is not listed as an asset, the
consideration given was zeroed out the investment account during the consolidation process
when the investee’s stockholder equity accounts were removed from the consolidated worksheet,
and any under/over valuation in excess of Glacéau’s carrying value was recorded on Coca-Colas
consolidated financial statements at fair value and amortized/depreciated accordingly.
6:
The acquisition was a great deal for Coca-Cola for the reasons stated above, however, the
following is why I believe Energy Brand’s is one of the most clever brands and has some of the
best marketing techniques in the business. Although I don’t believe that Glacéau marketed
themselves with the utmost ethical standard, I don’t think that is necessarily a concern for a
corporate giant like Coca-Cola. They switched markets advantageously; Glacéau was out of the
“enhanced water” industry with the success of Vitaminwater and into the main-stream mass-
marketing sector, without changing the brand’s reputation. Consumer’s healthy perception of the
company remained unchanged because of how Glacéau’s business model initially differentiated
them from the soft-drink industry. Additionally, their branding technique enabled them to sustain
their healthy association. For instance, calling themselves “Vitaminwater”, is the epitome of
healthy association, and individual flavors were cleverly named as “Energy”, “Power-C”,
“Restore” and “Focus” left room for a misunderstanding of the actual health contents-or lack
thereof in the drink. [2] In actuality drinks loaded with sugar not only dehydrates the body, but

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makes you spike then crash. Alternatively, Vitaminwater Zero mitigates that dilemma. Glacéau
has become an overall asset to Coca-Cola’s portfolio, and success to their diversification plan, by
bringing in revenues at a rate which offsets the decrease in consumption of Coca-Cola Classic’s
line of sparkling, syrup-based beverages.

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WORK’S CITED PAGE
"Energy Brands" on Revolvy.com." Energy Brands. N.p., n.d. Web. 08 May 2016.
<http://broom02.revolvy.com/main/index.php?s=Energy+Brands&item_type=topic>. [1]
Esterl, Mike. "What Is Coke CEO's Solution for Lost Fizz? More Soda." The Wall Street Journal.,
18 Mar. 2015. Web. 08 May 2016. <http://www.wsj.com/articles/what-is-coke-ceos-solution-
for-lost-fizz-more-soda-1426727708>. [2]
"James A Keyte." Skadden, Arps, Slate, Meagher, & Flom LLP, n.d. Web.
<https://www.skadden.com/professionals/james-keyte>.[3]
Ross, Sean. "Vitaminwater Has Been Coca-Cola's Best Purchase | Investopedia." Investopedia.
13 Aug. 2015. Web. 08 May 2016.
<http://www.investopedia.com/articles/markets/081315/vitaminwater-has-been-cocacolas-
best-purchase.asp>. [4]
Sorkin, Andrew Ross, and Andrew Martin. "Coca-Cola Agrees to Buy Vitaminwater." The New York
Times. The New York Times, 25 May 2007. Web. 08 May 2016.
<http://www.nytimes.com/2007/05/26/business/26drink-web.html?_r=0>. [5]
"J. Darius Bikoff Biography”. Encyclopedia of World Biography N.p., n.d. Web. 2 May 2016.
<http://www.notablebiographies.com/newsmakers2/2007-A-Co/Bikoff-J-Darius.html>. [6]
*Complementary Financial Statements Attached—derived from Coca-Cola’s 2007 10k:
http://www.coca-colacompany.com/investors/2007-annual-report-on-form-10-k/
—Consolidated Statements of Income
—Consolidated Balance Sheet