Coca-Cola (NYSE: KO) is highly regarded in the investment community, and for good reason. It’s one of the world’s most valuable brands, with a universally recognized logo. Over the past several decades, Coca-Cola has grown into one of the biggest companies in the world, with more than 3,500 beverage products sold in more than 200 countries.Coca-Cola African expansion

But these are no easy times for the beverage giant. Soda sales have declined in the U.S. for the past decade. There has been a clear and undeniable shift in consumer attitudes for many years. People are placing a renewed focus on health and wellness, and sugary beverages are square in the cross hairs of health-conscious consumers.

In an effort to adapt to the changing consumer landscape, Coca-Cola is turning to M&A. Through acquisitions and investments in other companies, Coca-Cola is trying to buy the growth it can’t generate on its own.

Coca-Cola’s latest investment is an agreement with Tropical General Investments Group. Otherwise known as TGI Group, it is the holding company of Chi Ltd., which is Nigeria’s leading dairy and juice company. The two companies have come to an agreement whereby Coca-Cola will take a 40% stake in Chi Ltd., with the intention to increase that stake to a complete 100% within three years. According to The Wall Street Journal, the initial investment values the company at slightly less than $1 billion.

The deal presents a number of strategic benefits for Coca-Cola. Africa is a premier emerging market, as it has a growing population and rising middle class. This makes Africa fertile territory for consumer product giants like Coca-Cola, which has the financial prowess and distribution capabilities to make the necessary investments into this lucrative market.

Why African Expansion Makes So Much Sense

Nigeria is Africa’s largest economy, and Chi Ltd. is an industry leader with a wide portfolio, including a number of popular soft drinks, juices and water beverage brands. It’s a natural fit for Coca-Cola, which has a very similar product portfolio. And thanks to Coca-Cola’s massive scale, it will likely be able to squeeze out significant cost synergies if and when it takes full ownership of Chi Ltd.

Africa is a relative newcomer to the emerging markets investment theme, but Coca-Cola actually has deep roots there. Coke was first served in Johannesburg, South Africa in 1928. Its products are in every country in Africa and its system employs more than 70,000 people.

According to World Bank economic projections, Sub-Saharan Africa is expected to grow its gross domestic product by 4.6% this year and by 5% in 2017. Nigeria is projected to grow its economy by 5% in 2016. These growth rates are much higher than in more developed, mature markets like the United States.

The deal couldn’t have come at a more opportune time for Coca-Cola, which badly needs a boost. Total revenue declined 4% last year, due mostly to the strong U.S. dollar. Operating profit declined 10% in 2015.

As a result, it’s not surprising to see the company accelerate its investment in Africa, which has been a strategic imperative for many years. In 2014, Coca-Cola announced an increase in future investments in Africa. It now plans to spend $17 billion during a 10-year period that began in 2010 and ends in 2020. This decade-long investment is roughly three times the amount invested in the preceding decade.

Coca-Cola Makes a Good Deal

While in certain cases going on an acquisitive spending spree can turn out to be a waste of shareholders’ money, that doesn’t appear to be the case here. Coca-Cola was late in responding to the evolving consumer attitudes, but it is making up for that with aggressive investments in recent years.

The investment in Chi Ltd. is another demonstration of management’s desire to get with the times, and that’s ultimately a good thing. Coca-Cola has made a number of savvy bolt-on acquisitions to try to reduce its dependence on soda sales in the U.S. Deals like these provide a good chance that the company can return to earnings growth over the next few years.

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Published by Wyatt Investment Research at