Coca-Cola to buy 29 percent stake in Indonesian unit for $500 million

By Byron Kaye

SYDNEY (Reuters) - Coca-Cola Co (N:KO) will help out Australian affiliate Coca-Cola Amatil Ltd (AX:CCL) by taking a minority stake in a struggling Indonesian unit for $500 million (312.94 million pounds).

Coca-Cola Amatil's Sydney-listed shares rose 5 percent after its United States backer agreed to take the 29.4 percent holding which effectively values the Indonesian business at $1.7 billion.

While sales volumes have jumped in South-East Asia's largest economy, the unit's first-half earnings before interest and tax plunged 83 percent to A$5.2 million on rising costs and unfavourable currency rates.

Coca-Cola Amatil has also been under increasing pressure to improve earnings across the board after annual net profit slumped more than 80 percent and warning that it expects another profit decline in the current financial year.

Under new Chief Executive Alison Watkins, Coca-Cola Amatil - which is itself 29 percent owned by the U.S. Coca-Cola Co - has been undertaking a strategic review to address changing tastes of its core Australian market.

It is launching a smaller, cheaper Coke can and promising more sugar-free products which are due to hit the market in April.

The U.S. cash injection will also enable the Indonesian business to broaden its product offering and overhaul its logistics operations to grow its customer base.

"We are confident that the combination of revenue and cost initiatives we have underway will restore the business to growth," Watkins said in a statement, adding that the pace of recovery will depend on its Australian initiatives succeeding and Indonesian economic factors.

Coca-Cola Amatil shares climbed to A$9.11 in early trade while the benchmark S&P/ASX 200 index (AXJO) rose 0.3 percent.

(Reporting by Lincoln Feast and Byron Kaye; Editing by Edwina Gibbs)