SABMiller has large appetite for Africa's soft drinks market SABMiller, the UK-based brewer, raised a Thanksgiving Day toast on Thursday to seal a deal that will make it Coca-Cola's biggest bottler in Africa. The tie-up will help rationalise Coca-Cola's fragmented bottling structure on the continent, while giving SABMiller greater exposure to the fast-growing soft drinks market. Under the terms of the deal, Coke's five south African bottlers will be absorbed into one joint venture, which will be dominated by the UK-based brewer. It will have revenues of $2.9bn and operating profits of $505m. But a question hanging over the deal is the extent to which the world's second-largest brewer will be able to extract synergies. The answer appears to be very little, given the disclosure that its beer and soft drinks operations would be run separately. Alan Clark, SABMiller chief executive - who once headed the group's soft drinks operation - said: "We're not going to be looking for strong synergies, particularly in sales and distribution. And probably even manufacturing. That came as a disappointment to analysts. Trevor Stirling, analyst at Bernstein Research, said: "While the combination makes sense operationally, the upside for SABMiller shareholders will not be as great as one would have hoped. The businesses will still be run separately - probably a stipulation made by Coca-Cola which has traditionally been touchy on the subject. So the potential prize of merging beer and soft drinks in sub-Saharan Africa will be left on the table. Coca-Cola's 113-year-old bottling model splits ownership of the brand and concentrate from capital-intensive bottling and logistics, the bulk of which is handled by independent franchises. Traditionally, its preference has been to award franchises to those dedicated to Coca-Cola's drinks, such as South Africa's Gutsche family. Their Coca-Cola Sabco business has been loyally bottling Coke's brands for the past 74 years and is its second-largest bottler in South Africa. It also has operations in Mozambique, Namibia, Tanzania and Uganda. The family will take a 31.7 per cent stake in the joint venture. The Atlanta-based company - in the US's Bible Belt - has traditionally been chary of awarding brewers the Coca-Cola franchise, fearing potentially competing interests, or simply a lack of dedication to Coke brands. But the exceptions are many, including Dutch brewer Heineken and SABMiller, as well as Castel, the French drinks group that has a cross-shareholding agreement with SABMiller. SABMiller has also been diffident about its relationship with Coca-Cola, tending to regard soft drinks as an adjunct to its core brewing operations. Under the late Graham Mackay, the pioneering force behind SABMiller's internationalisation, the relationship had some low points - usually over the extent of profits that SABMiller was allowed to extract from a relationship that dates back to 1977. Nevertheless, it bottles 55 per cent of Coca-Cola's volumes in South Africa, reflected in its 57 per cent shareholding in the joint venture. Mr Clark, who took over from Mr Mackay last year, has made his first big strategic decision as chief executive to squash that ambivalence in deciding to commit to soft drinks by strengthening the relationship with Coca-Cola. The three main reasons for this are. First, sales of mainstream lager are flagging in the face of the slowdown in demand in emerging markets and stagnant or falling volumes in developed countries. But soft drinks have been fizzing. Lager sales fell 1 per cent in the six months to the end of September, but soft drinks rose 9 per cent. Second, SABMiller's exposure to soft drinks increased after it took a 24 per cent stake in Turkey's Anadolu Efes brewer that in turn owns 51 per cent of Coca-Cola Icecek - the Coke bottler in Turkey, the Middle East and central Asia. Soft drinks account for 21 per cent of SABMiller's volumes and this will rise to 26 per cent under the joint venture. The downside is that SABMiller's 19 per cent soft drinks profit margins will, at least initially, be diluted. But return on capital will be higher compared to beer, because soft drinks is a less capital-intensive business. Third, the agreement will give SABMiller access to more countries in Africa, seen as the most promising long-term market because of its favourable demographics and fast-growing economies. For Coca-Cola, Africa could help balance the decade-long decline in its core US business and help Muhtar Kent, chief executive, deliver on his 2020 growth plan. Nathan Kalumbu, president of Coca-Cola Eurasia and Africa, said: "Africa is about 10 per cent of the Coca-Cola company's revenue and volume and it has the potential to double that contribution. Our 2020 vision was to double our business in Africa by 2020 and we are well on the way. The deal also enables Coca-Cola to continue its policy of diversifying from its core Coke product because it will acquire or license rights to 20 SABMiller soft drinks brands, including Appletiser.