Coke buys Bethesda's Honest Tea

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By Danielle Douglas
Capital Business Staff Writer
Tuesday, March 1, 2011; 7:28 PM

Coca-Cola announced Tuesday that it has sealed the deal to acquire Maryland organic-beverage company Honest Tea for an undisclosed price, a month after its option to buy the boutique brand, in which it owned a 40 percent stake, came due.

Under the terms of the agreement, Honest Tea co-founder Seth Goldman will continue to operate the company as a standalone business in Bethesda, with the same senior management team. Goldman will retain a stake in the company through a reinvestment of his proceeds from the sale, in an arrangement that is fairly unique for Coke.

"This is a recognition that, especially with early-stage brands, the entrepreneurs continue to be relevant and important," said Goldman, who founded the company with Barry Nalebuff, his Yale University business professor, in 1998. Nalebuff will continue to serve on the company's advisory council. "We have an amazing opportunity to take our mission to a much broader level."

Honest Tea will be a part of the venturing and emerging brands unit of Coca-Cola North America, which led the original $43 million investment in the local company three years ago. As a part of the unit, Honest Tea will begin selling several of its brands, such as illy issimo, to the natural marketplace.

"Seth is just a wonderful entrepreneur, and the partnership has been fabulously successful," said Deryck van Rensburg, president and general manager of Coke's VEB unit. He added that Goldman's reputation in the natural foods niche market should prove beneficial in the new sales structure.

News of the deal was well received on Wall Street, with Coke's stock closing up nearly 1.6 percent. The company's intentions became clear in January, when the Federal Trade Commission granted the company antitrust approval to buy Honest Tea. Goldman informed shareholders last month that an agreement with the behemoth corporation was near.

Honest Tea, which has 127 employees, has substantially grown in the three years since Coke's investment. The beverage, with flavors such as Pomegranate White Tea and Black Forest Berry, can now be found in 70,000 outlets across the country, compared with 15,000 prior to the investment. Gross sales last year hit $71 million, more than triple the revenue the company cleared in 2007.

Goldman said the company is wrapping up distribution deals with Rite Aid and Walgreens. Next week, Honest Tea plans to release a new beverage at the Natural Product Expo West in Anaheim, Calif.

Some fans of Honest Tea have shuddered at the idea of Coke holding reign over the brand, which has built a reputation for using healthy ingredients and engaging in socially responsible practices, such as organizing tea garden cooperatives in developing nations.

"We've been engaged to Coke for the past three years and now we are getting married," Goldman said. "When your engaged to somebody, you're around them enough that you can gauge any bad habits. So we don't really expect any surprises and we certainly have developed a good working relationship."


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