Nestea Acquisition

Andres Elizundia, Casey Hurley,

Joel Samen, Meg Meyer, Mikhail Gurevich,

Sandesh Shrestha, Stella Lai

December 15th, 2010

The Mighty Geese Division (Team 6)

Diversified Products, Corp.

Acquisition Target

1. Industry & Competition

2. Acquisition Target: Nestea

3. Recommendations 4. Financial Analysis

RTD Tea Industry

Industry Issues Strategies OB Financials

A Growing Industry1

20092,583M

RTD Tea

Bagged/loose Tea

Tea Mixes

2014 (F)3,724 M

67.8%

23.4%

8.8%

(Food, drug, mass retailers excluding Wal-Mart)

FDMx Sales and Forecast by Segment 1

11.6%

29.2%

59.2%

2

0

20000000

40000000

60000000

80000000

100000000

120000000

140000000

Sale

s in

US

D $

MMMonthly RTD Tea

Sales 2 Summer

Winter

Average Difference

50%

Timeline, from Jun-05 to Jun-10

A Dynamic Industry

Who?

45% of US population3

RTD Tea Consumers3

Why?

Taste , refreshment , health, and with meals4

When?

SummertimeBarbecues5

What?

Less sugarFamily-size packaging7

Where?

Supermarkets Convenience stores 6

U.S. RTD Tea Sales Market Shares8 (Sales Dollars)

Other

33.7%21.9%

13.4%

26.5%4.5%

Others

4

A Market Dominated by Few

$0.75

Quality

5

Competition Segments: Quality, Variety, Low Price

Snapp

le

Nes

tea

Lipto

n

Arizon

a

Red D

iam

ond

Turke

y H

ill

Privat

e Lab

el$0.00

$0.20

$0.40

$0.60

$0.80

Price per Equivalent Unit 9

$0.48

Variety

$0.43

$0.37

Low Price

$0.47

?

Problem Diagnoses

Industry Issues Strategies OB Financials

52 weeks ending Jan. 2009

52 weeks ending Jan. 2010

0

40

80

120

-10.1%

-1.8%

23.5%

Why Would Coca-Cola Want to Sell Nestea?

Nestea’s declining sales

Other products sales are increasing

Coca-Cola will have:

1) Positive growth numbers

2) Single-minded focus on premium segments

2009 – 2010 Sales Per Company10

6

Sale

s in

US

D $

MM

Lack of a Clear Target Market and Focus7

2004“Cool to the Core”

campaign

2006Rebranding for a more

“Natural” feel

New Target: 18-34 years8

Large portion of U.S. population

Closely aligned with Teens

Opportunity: Repositioning Nestea

15-17 18-24 25-34 35-44 45-54 55-64 65+ 0

5,000,000

10,000,000

15,000,000

20,000,000

Potential Market Demand for RTD Tea

Pop

ula

tion

Age Groups

Sales & Marketing Strategies

Industry Issues Strategies OB Financials

Nestea Revitalization Plan9

Rebranding

New FormulaMessaging

1

2

3

4

5

Promotion, Placement, and

Distribution qualitea. realitea. nestea

More Packaging Options

Nestea Revitalization Plan

Rebranding

1

2

3

4

5

qualitea. realitea. nestea

Nestea’s New Look10

Nestea Revitalization Plan

Rebranding

New Formula

1

2

3

4

5

qualitea. realitea. nestea

Improving Taste & Variety11

Reformulation12

Reduce high fructose corn syrup by 25% Add more real tea flavoring

New Flavors13

Regular (including diet) Lemon (including diet) Half-Half (iced tea/lemonade mixture) Green Tea Raspberry Peach Sweet Tea Unsweetened

Nestea Revitalization Plan

Rebranding

New Formula

1

2

3

4

5

qualitea. realitea. nestea

More Packaging Options

Year 1

Changes Taking Shape12

Year 2

14

Pricing Strategy13

MSRP: $0.90

MSRP: $1.60

MSRP: $4.55

MSRP: $6.25

Our Profit Margin 64%

Retail Margins 24%

Distributor Margins 25%

Bottler Margins 40%

Nestea Revitalization Plan

Rebranding

New FormulaMessaging

1

2

3

4

5

qualitea. realitea. nestea

More Packaging Options

qualitea. realitea. nestea.15

qualitea Additional flavors

realitea Reformulation

partea Fun summer drink

originalitea

New can and bottle design

Advertisement Taglines

16

Advertising Mix

Cost: $900,00015, 16, 17

Estimated Audience: 19,090,000

17

Advertising Mix

Nestea Revitalization Plan

Rebranding

New FormulaMessaging

1

2

3

4

5

Promotion, Placement, and

Distribution qualitea. realitea. nestea

More Packaging Options

18

0 5 10 15 20 25 30 35 40 45 500

2000000

4000000

6000000

8000000

10000000

12000000

% Units Promoted18

Sale

s M

illi

ons1

8

OK, let’s promote!

Where is Nestea?19

Our plan:

Divesture from Coke-Nestea

Better promotion strategy

Less sales force turnover

Organizational Considerations

Industry Issues Strategies OB Financials

Mission, Vision, and Values20

Our Mission:To provide our customers with the best possible selection of high quality

and refreshing iced teas in a variety of flavors and sizes.

Our Vision19:

People Partners

Planet Portfolio

Performance

Our Values:Loyaltea Qualitea

ProductiviteaAccountabilitea Diversitea

Implementing Nestea’s Revitalization21

We Will Build Upon: Strong brand name Distribution Connections Coca-Cola and BPW Employees20

We Will Hire: Current Coca-Cola employees Coca-Cola and BPW Management New employees who believe in Mission, Vision, and Values

Vikram, Growth Management

Tania, IT General Management

Alex,Strategy and Business Development

Norms and Culture: Industry Vs. Us22

Bottled Beverage Industry21

High turnover Inconsistent Relationships New “hot” product

Market Share Non-Carbonated RTD

Beverages 22

We Will Prioritize Low turnover rate, establishing

relationships• Employees with long-term goals• Continuing education• Performance reviews• Empowerment• Rotation program• Communication

Supporting the Greater CommuniTEA23

.

CommuniTEA Barbecues:

20 cities

Essays about community revitalization

Alignment with new brand image

Water Conservation:

Supporting bottling partners

85% have high water treatment

standards24

10% of income to World Water

Council23

Financial Projections

Industry Issues Strategies OB Financials

Base Year Financial

StatementsBudget Model Forward Budget

Pro Forma Financial

Statements

Valuation

Financial Framework

Learn the structure

Validate through secondary model

Project financial impact of

management decisions

Based on management

decisions

24

Does the financial story support management decisions?

Process

Capital Budget: The Takeover

DecisionsFinancial

Statements

• Marketing• Product

development• Operations

ROE: 33%

Cans Bottles Total

-20.00%

-10.00%

0.00%

10.00%

20.00%

30.00%

40.00%

50.00%

60.00%

70.00%

Contribution MarginOperating Margin

Can Bottle Gallon Partea cooler

Total0.00%

10.00%

20.00%

30.00%

40.00%

50.00%

60.00%

70.00%

Contribution MarginOperating Margin

Base (09) 2010 2011 2012 2013 2014$0

$10

$20

$30

$40

$50

$60

RevenueNet Income

62%

190%

Base Year (2009)2014

25

Valuation

New Management NPV: $201.9 MM

Accounting For Uncertainty• Margin of error $58.7 MM• Range $143-260 MM

Sensitivity Analysis• Industry growth• New product sales• Risk

26

27

Conclusion

Value Under Old Management$35 Million

Value Under New

Management$200 Million

Opening Offer$100 Million

Negotiation95% Certainty of

Profits

One Standard Error Under

NPV$140 Million

28

Conclusion

The ProductThe

CompanyThe Market

Reformulation

New Flavors

Focus

Devotion

Distribution

Advertising

Rebranding PromotionCommunicati

on

Questions ?