Coca-Cola Wednesday ended a half-century collaboration with its local partners in Sweden and Norway, saying it would build its own production facilities in the two countries as part of a stand-alone strategy.
The announcement will trigger restructuring at Pripps Ringnes, which relies on the U.S. group's products for $404 million, or 35 percent, of its turnover.The company, controlled by Orkla of Norway, said it would have to lay off 1,400 employees, or 20 percent of its 7,000 workforce.
Pripps Ringnes, which is to receive a $164 million severance settlement from Coca-Cola, was formed last year by the merger of Pripps of Sweden and Ringnes of Norway.
Paul Bergqvist, the group's managing director, put on a brave face, saying profits after financial costs would be in line with last year's pre-tax figure of $80 million once the phase-out was complete. He said the Swedish operations would cost about $29.9 million to wind down and the Norwegian cost would be "somewhat higher."
He said differences had arisen with Coca-Cola over the production and distribution operations in Sweden and Norway. Coca-Cola had wanted part-ownership of Pripps Ringnes, while the company was determined to remain independent.
Coca-Cola appeared uncomfortable with the dominance of Pripps Ringnes in the domestic market. In Sweden, it has 65 percent of the carbonated drinks sector and a leading position in beer and mineral water in both countries.
One analyst said of Coca-Cola's move: "The extent to which it will hurt Pripps Ringnes will depend largely on whether Coca-Cola will be aggressive and put pressure on prices. Then the remaining soft drinks business will be extremely vulnerable."
In December Coca-Cola and Pripps had a public disagreement after the U.S. group withdrew from its Swedish production and distribution deal. The dispute prompted Pripps to shut briefly its Coca-Cola bottling facilities, although negotiations later resumed.
Coca-Cola's arrangement with Pripps dates back 42 years, while collaboration with Ringnes goes back 58 years.
Under Wednesday's agreement, Pripps Ringnes will produce, sell and distribute Coca-Cola products until March 1997. Thereafter, it will bottle the U.S. group's brands until the end of 1998.
Coca-Cola plans to build a new production facility in Stockholm and another in central Norway.
(Distributed by Scripps Howard News Service.)