The Coca-Cola Amatil Ltd (ASX: CCL) share price outperformed on Thursday on speculation that it's about to make a sizable acquisition.
The CCL share price jumped 2.8% to a seven-month high of $10.75. In contrast, the S&P/ASX 200 Index (Index:^AXJO) shed 0.3% of its value.
The beverages group may have found favour for its relatively defensive business model during a risk-off day.
After all, the Treasury Wine Estates Ltd (ASX: TWE) share price and Woolworths Group Ltd (ASX: WOW) share price held up better than most.
COVID leaves CCL share price tasting flat
But that's only a small part of the story. I believe investors got excited on an Australian Financial Review report that CCL is readying to lob a bid for some of Asahi's assets.
There's nothing like merger and acquisition (M&A) action to get the blood pumping. Despite selling staple products, the COVID‐19 panic hasn't played out in CCL's favour.
A big driver for demand for its drinks come from dine-in consumers. With cafes and restaurants forced only offer takeaway during social restrictions, sales have been as appetising as flat Coke.
Coca-Cola Amatil share price regains fizz on M&A
But Coca-Cola Amatil is hoping to turn its fortunes around with a substantive acquisition. It appears that the group tested the appetite of its biggest shareholders for a capital raising to help fund a possible transaction.
The AFR reported that Macquarie Group Ltd (ASX: MQG) is riding beside Coca-Cola Amatil and would underwrite the sale of new shares.
Coca-Cola Amatil is leaving all options open. It's considering funding any asset purchase via debt or using a mix of debt and equity.
Asahi acquisition details
The ASX group is one of two known bidders for Asahi's portfolio, which includes a handful of beer and cider brands. The other keen suitor is reported to be global beer giant Heineken.
Asahi has to divest brands like Stella Artois, Beck's and Strongbow to get regulatory clearance for its takeover of Carlton & United Breweries.
Will Coca-Cola Amatil undertake a rare capital raise?
Investors don't get many chances to participate in a capital raise with Coca-Cola Amatil. The group has not sold new shares in decades.
Given that stuck-at-home Aussies are increasing their intake of alcohol to help overcome the worst economic crisis in living memory, I suspect any cap raise by CCL will be well received. This is particularly so in the current environment of cheap money and ample liquidity.
Speaking of which, it will probably be a lot cheaper for Coca-Cola Amatil to use debt to fund any purchases.
This is of course assuming lenders are willing to provide it with more debt. The group is already holding around $1.7 billion in net debt.
