Only now the “choices” that customers are making are more conscience, they’re very aggressively choosing healthier brands. So rather than try to fight the tide, Coca-Cola bought the tide–starting with its acquisition of Odwalla in 2001, and later Vitamin Water–and the illusion of choice has roared on. This “illusion” is part of what separates The Coca-Cola Company (NYSE:KO) from competitor, and fellow successful acquirer, PepsiCo, Inc. (NYSE:PEP). Pepsi’s acquisitions have led to amazing revenue diversification; in fact, a majority of Pepsi’s revenues (60%) come from Frito Lay and Quaker.
But a few things separate Coca-Cola from the rest of the pack. While PepsiCo, Inc. (NYSE:PEP) is an outstanding acquirer and a strong company, The Coca-Cola Company (NYSE:KO) is acquiring more healthy beverage brands that the market is seeking as an alternative to cola. But the most important differentiator is that Coca-Cola’s acquisitions are all beverage companies. Not only does this help operationally–to streamline distribution channels–but it also helps The Coca-Cola Company (NYSE:KO) steal more “new” customers from competitors. Today, 70% of Coke’s revenues come from non Coke brand beverages. These beverages would typically be pulling market share away from the traditional Coke brand, and that’s the difference–they’re not an “add-on” product like Frito’s are to Pepsi.
Buying this market share has lead Coca-Cola to double-digit revenue, earnings, and dividend growth over the past five years. Think about that–all three categories have grown in excess of 10% for five consecutive years. What a business model!
Make a smart acquisition…buy these stocks
It’s long been said that “no news is good news,” and I think that applies to good acquisitions as well. It’s the disasters like the Time Warner/AOL merger that make headlines. Success is not a sexy story, but acquisitions can work.
The overriding theme of successful acquisitions is the company being acquired must be significantly smaller than the acquirer and fit the acquirers over-arching business plan. That’s certainly the case with the acquisitions we’ve discussed. So consider both The Coca-Cola Company (NYSE:KO) and The Walt Disney Company (NYSE:DIS) for your portfolio, and let’s hope that they make another acquisition soon!
Adem Tahiri has no position in any stocks mentioned. The Motley Fool recommends The Coca-Cola Company (NYSE:KO), PepsiCo, and The Walt Disney Company (NYSE:DIS). The Motley Fool owns shares of PepsiCo, Inc. (NYSE:PEP) and Walt Disney.
The article Make a Smart Acquisition and Buy these 2 Stocks originally appeared on Fool.com.
Adem is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.
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