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Coca-Cola, the listed, Atlanta-based beverage company, remains interested in acquiring AriZona Iced Tea despite having acquired Glaceau (Energy Brands) last month for USD 4.1bn, according to industry sources. Coke has been stalking the New York-based tea business for the past two years, the sources said, but now AriZona’s owners, Don Vultaggio and John Ferolito, have seen that Coke is willing to pay an extremely high multiple.

One source said AriZona’s revenues were USD 300m and its asking price was at least USD 1bn. A second and third source who were not privy to AriZona’s revenues said nevertheless that the valuation seemed low. Even so, one banker said at 20% margins USD 1bn would equal a 15X to 16X Arizona’s EBITDA, which did not seem unlikely given the more than 20X multiple Coke paid for Glaceau. AriZona is more profitable than Glaceau, the first source said. After restructuring its joint venture with Nestea to allow for more flexibility in March, Coke was now able to make a large acquisition in the tea business, the sources agreed.

Despite ongoing discussions, the sources said that there was uncertainty about AriZona’s owners’ willingness to do a deal. Vultaggio and Ferolito’s tax situations were highly tied up in the business, a second source explained.

One banker said he thought that Coke would wait and see what form the Cadbury’s Americas Beverage auction took before making a move on AriZona. Cadbury’s auction, which includes the Snapple brand, has reportedly been whittled down to two private equity consortia and is expected to close soon. Snapple competes with AriZona in the tea category — an area in which Coke is seen to be weak, the sources said. Also, it has been speculated that the best way for a private equity buyer to maximize the value of Cadbury’s assets would be to sell off certain brands individually, making them attractive for strategics which would have faced anti-trust issues trying to acquire the entire business, one source said. Snapple, for example, is a business that is attractive to Coke and despite showing a flat performance last year, the segment would see interest if it were sold, the sources said.

Snapple was sold by Nelson Peltz’s Triarc Partners to Cadbury in 2000 for USD 1.45bn. Since then the business has declined in value to an estimated USD 750m to USD 850m, an analyst said. Last year the business was flat, according to the company’s annual report. Cadbury spent the past year integrating Snapple into its beverage business overall, the analyst said, and a separation could create dis-ecomonies of scale. But the first source said this would not create a problem if the entire business was broken up and sold to strategic buyers which already have scale.

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