Fitch Ratings has affirmed Coca-Cola Enterprises's (CCE's) ratings including the Issuer Default Rating (IDR) at BBB+.
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The affirmation follows approval by CCE shareholders and regulatory approval by the UK Listing authority of Coca-Cola European Partners' plc (CCEP) prospectus.
Fitch has affirmed and withdrawn CCE's bank credit facility, Short-Term IDR and Commercial Paper (CP) ratings since CCEP will establish a CP program and EUR1.5 billion RCF.
CCEP will be the new UK domiciled Western European bottler, combining the bottling operations of CCE, Coca-Cola Iberian Partners (CCIP) and Coca-Cola Erfrischungsgetranke AG. The transaction closed on May 28. A full list of rating actions follows at the end of this release. The Rating Outlook is Stable.
CCEP had pro forma 2015 revenue and EBITDA in excess of $12 billion and $2 billion, respectively. Fitch views the new bottling combination as a positive long-term step toward improving the sustainability of cash generation for the Coca-Cola System's underlying business operations in Western Europe.
The merger increases operational scale, creates synergy opportunities, better leverages best practices and improves operational strategy across 13 contiguous countries. This should improve efficiencies, thus increasing CCEP's ability to invest behind the brands.
Annual run rate transaction synergies and cost improvement initiatives unrelated to the transaction that are in process at each entity are estimated in the range of $350 to $375 million in aggregate during the next three years.
Fitch believes these cost reduction opportunities are mostly achievable but timing could be delayed due to the complex execution risks around the time-consuming integration process of merging three companies that will require significant management attention and challenges with the labor environment in Europe.
The German operations have much weaker profitability due in part to its cost structure. Accordingly in March 2016, a restructuring was announced to close two production sites, six distribution sites, a phase out of a refillable PET production line and employee lay-offs that resulted in a restructuring charge of approximately EUR137 million.
CCEP will be the largest independent Coca-Cola bottler based on net sales serving over 300 million consumers across 13 countries.
The Coca-Cola Company's 18% ownership position, which includes two board seats, should also enhance the strategic alignment within the Coca-Cola system between the two companies. Consequently, Fitch believes CCEP's ratings derive benefit given its strategic importance within the Coca-Cola system.
CCEP is facing persistent headwinds with the macro environment in various parts of Western Europe characterized by reduced consumer spending, higher unemployment and the negative effects of austerity programs.
Fitch's Global Economic Outlook for GDP in 2016 is more favorable in Spain (2.8%) than in United Kingdom (1.9%), Germany (1.8%), and France (1.4%). ■