Coca-Cola may be preparing to acquire Honest Tea
Organic beverage company Honest Tea of Bethesda may soon be a part of Coca-Cola. The behemoth corporation, which owns a 40 percent stake in the boutique brand, has an option to buy the company coming due this month.
Coke is mum on the matter, though there are signs suggesting the company is preparing for a merger. Late last month, the Federal Trade Commission granted the company antitrust approval to buy Honest Tea (acquisitions exceeding $63 million require government clearance under the Hart-Scott-Rodino Antitrust Improvements Act).
"The FTC's early termination of the HSR waiting period is certainly good news and we hope to share additional information at a later date," said Coke spokesman Scott Williamson, declining further comment.
In the three years since Coke made its $43 million investment in Honest Tea, sales of the bottled brew have skyrocketed. Once bound to the shelves of natural food depots along the coasts, the organic tea can now be found in a wide variety of outlets, even CVS stores across the country.
"We're now seeing this idea that started out of my house with some thermoses and an empty Snapple bottle, get to a national stage. So I'm eager to move forward," said Seth Goldman, who co-founded Honest Tea with Barry Nalebuff, his business professor from Yale.
Asked whether a sale is imminent, Goldman, 45, said, "When we made the decision to have them invest, the expectation was they would do it with the interest of wanting to acquire." However, he continued, "Just because they have the option doesn't mean that they'll take it, or even if they take it, that the deal closes."
Acquiring Honest Tea is a no-brainer to those following the beverage industry.
"Honest Tea is a growth company, which fits better than many of Coca-Cola's brands that were losing sales during the recession and as consumers trend toward health and wellness," said Garima Goel Lal, senior analyst at Mintel International. "It would be a good purchase."
The ready-to-drink tea category has already been a successful gamble for Coke, supporting the double-digit growth the company's noncarbonated segment recorded in the third quarter, the most recent available data at press time.
Industry-wide sales of ready-to-drink teas climbed throughout the recession while other beverage segments witnessed steady declines, according to Beverage Marketing Corp. Leading the pack was none other than Honest Tea. Trade publication Beverage Digest pegs the company's growth at 46 percent last year, compared to about 11 percent for the overall niche market.
Goldman's own estimates are a smidge higher, with gross sales, penciling in at $71 million, up 52 percent in the last year. That's quite a leap from the $23 million he said Honest Tea cleared in 2007 B.C. -- before Coke, that is.
Not that Honest Tea wasn't thriving before Coke took notice. A number of investors, including yogurt maker Stoneyfield Farm and private-equity firm Inventages Venture Capital, signed on as the brand won favor with the likes of Whole Foods.