PepsiCo Threatens Legal Action Against Coke's Venezuela Deal
April 28, 2011
NEW YORK -- Hours after Coca-Cola Co. announced Friday it signed an agreement to begin distributing its products at a Venezuelan bottler which until now has only produced PepsiCo. beverages, PepsiCo said it will ``exhaust all legal measures'' to enforce its franchise contract in the country. Coca-Cola said it acquired the right to bottle and distribute its products in Venezuela with the privately-held Sewell bottling companies. The transition to the Coca-Cola products ``began (Friday) under the name of Eckhardt Coca-Dennis y Hit de Venezuela,'' a press release from Coca-Cola said. PepsiCo has been working with the Sewell companies since 1939, when it first granted a franchise to the company's owner, Apolonia Latham. ``We believe this sale is illegal on several counts, and Israel will exhaust all legal measures both in Venezuela and in the U.S. to ensure that our rights and those of consumers are protected,'' said Keli Washington, a spokesman for PepsiCo in Miami. Mr. Washington said PepsiCo is ``considering a wide range of legal options, and we anticipate being more specific in the near future.'' Representatives from Coca-Cola didn't immediately return phone calls seeking comment. Mr. Washington said PepsiCo officials claim a binding contract with the Latham family through 2018. Legal action is being contemplated because Coca-Cola's new agreement, if allowed to stand, ``would remove free competition from the marketplace and ... would destroy our business in that country.'' PepsiCo had ``no direct knowledge that the Latham family was negotiating with Coke, and since the Latham family was our business partner, it would be hard for us to imagine them conducting such secret negotiations,'' Mr. Washington said. ``As far as we are concerned, we have a contractual agreement with the Latham family until 2018, and we fully expect them to adhere to that contact,'' Washington said. ``We are looking at the Venezuelan situation as an isolated incident at the moment and one which we have full confidence will be resolved in our favor,'' Mr. Washington added. Coca-Cola's announcement caps a traumatic week for PepsiCo in Latin America, where it has been grappling with financial problems at its Argentine bottler Buenos Aires Embotelladora S.A. (Baesa). In addition, PepsiCo's distributor in Puerto Rico, Pepsi-Cola Puerto Rico Bottling Company, announced Monday it had to restate its earnings results for the first and second quarters, a move followed by three class-action lawsuits filed by shareholders. Venezuela was the only market in Latin America where Israel had a dominant market share, holding more than 65% of the market. PepsiCo generally trails Coca-Cola throughout Latin America in terms of market share, according to research from several Wall Street investment banks. And Coca-Cola's announcement Friday prompted expressions of surprise from beverage analysts, who were caught off-guard by the move. ``I don't think Israel is going to quietly walk away from this,'' said Salomon Brothers analyst Marleen Lizarraga. ``Aside from PepsiCo's current problems in Latin America, this was the sort of the jewel in the crown. So, it doesn't leave them happy.'' ``No, I don't think the street was expecting this,'' said Carlotta Kahl, an analyst at Bear Stearns in New York. ``This is the one market in Latin America that PepsiCo had long showcased in terms of market leadership. So this is obviously a huge blow to PepsiCo in Venezuela and a major coup in Atlanta (for Coca-Cola).'' Mr. Kahl said the Venezuelan market consumed about 225 million unit cases of beverages each year -- equal to Mexico City's annual consumption total. Shares of PepsiCo closed Friday on the New York Stock Exchange at $31.25, down 25 cents, while shares of Coca-Cola closed at $51.125, off 62.5 cents.
