Indications now are that Pepsi will be filing an anti-trust case against Coca-Cola to prevent the deal. Although no official announcement to the effect has yet been made, industry observers cite Pepsi's recent anti-trust case against Coke in France to prevent a similar buyout. Pepsi won the suit around three months back and prevented Coke from buying out a brand called Orangina in France.

The long-standing rivalry between Coke and Pepsi has become akin to a cult war spilling into the living rooms of ordinary people. Many a time, Pepsi has opposed anything that Coke has proposed just for impact and to build an image of a serious contender to Coke's worldwide lead in the beverage business. This time, however, Pepsi will not be opposing for effect but because the stakes are just too high.

A quick look at the worldwide beverage market shows that Pepsi gets only 30 per centof its business from outside the US while Coke has 60 per cent of its volumes coming from outside. Sure enough, the Schweppes brands, bought out in 120 countries, will act as the third front, tilting the balance further in favour of Coke in these countries. Industry experts point out that the entire $1.8 billion deal, including $100 million of debt, has been struck for acquiring a paltry three per cent share outside the US, so the benefits for Coke do not come from gaining market share but from strenghthening its muscle power in terms of distribution and a stronger brand portfolio. The Schweppes brand, Dr Pepper, is the fastest growing non-cola brand in most countries today.

This is probably the first time that India will play centrestage to a worldwide business war. The country gains importance on two counts. First, it is considered the fastest-growing market outside the US and is projected to be among the top five carbonated soft drinks (CSD) markets by 2000. Second, it is only in India where Coke andPepsi have a neck-to-neck market share. In other countries, Coke is streets ahead of Pepsi. India is a thus crucial area to dominate for both.

According to a senior industry analyst, when the Schweppes's brands and businesses are transferred to Coke in June 1999, the cola major will be able to increase its slim lead by more than two per cent in India. Also, the Schweppes Tonic Water brand is expected to play an important role in strengthening Coke's institutional sales. In India, institutional sales account for more than 10 per cent of the total CSD volume, where Tonic Water is a very strong brand. So, Coke could well edge out Pepsi from insitutional sales by offering Tonic as a package deal with its own brands.

Although the Schweppes brands have not grown impressively in the Indian market, analysts feel that a brand like Canada Dry can open many new segments for Coke. They say that Canada Dry has a strong brand equity in India but suffers from lack of intensive distribution. With Coke'sfast-consolidating distribution network, they feel that the brand could easily garner a 5 per cent share in the market.

In India, Pepsi has realised the limitations of having a small brand portfolio and did launch a brand extension of Mirinda in a lemon flavour. While the jury is still out on whether Mirinda Lemon is a success or not, there is no denying the fact that Coke's takeover of Schweppes brands will hit Pepsi. The choice for Pepsi may then be to bring some of its own international brands into India like Snapple and Tropicana. However, introducing new brands takes a lot of time and investment while Coke gets a readymade basket of well-diversified brands.

If Pepsi is not able to stop this deal legally, analysts hazard that it could be a tough job for it to wrestle market share from Coke. The success of the Orangina anti-trust law suit, however, does give Pepsi a fighting chance of thwarting this threat.