One of my favorite business people hit the jackpot yesterday. Seth Goldman, the co-founder and Tea-EO of Honest Tea, sold a 40% stake of his company to The Coca Cola Co. The reported price values the company at about $110 million. Wow!
It couldnâ€™t have happened to a nicer guy. Seth is a friend and a fellow member of Adat Shalom Reconstructionist Congregation who brings a passion for the environment and social justice to his work at Honest Tea. The Bethesda, Md.-based company makes organic tea, only slightly sweetened, that tastes good and is better for you than conventional canned or bottled teas like Lipton, which is marketed by Coke rival PepsiCo.
Although Seth had told me that he had been approached by big beverage companies, I was stunned when I heard about his deal with Cokeâ€“ perhaps because of the way I heard it. I was meeting with Tom Mattia, head of global communications for Coke, in his stately office at Coke’s Atlanta headquarters when he casually referred to â€œthe Honest Tea acquisition.â€ After I nearly fell off his couch, he filled me in.
Deals like this one happen all the time in the world of organics and socially responsible businesses. Whether itâ€™s Ben Cohen taking Ben & Jerryâ€™s public, and then selling to global giant Unilever, or Gary Hirshberg (who is an Honest Tea board member) selling Stonyfield Yogurt to Group Danone, or Gene Kahn selling Cascadian Farm to General Mills, successful small companies canâ€™t seem to resist being swallowed up by big ones offering broader distribution, marketing muscle and, of course, cash to pay off founders and early investors.
Seth and Honest Tea co-founder Barry Nalebuff, his former teacher at Yaleâ€™s business school, offered assurances in a thoughtful posting on their blog that they are not selling out:
While Coke is now our largest shareholder, the agreement was negotiated to ensure that Honest Tea will not be managed or controlled by Coke. We will continue to operate as an independent business with the same leadership and mission.
By becoming part of Coca-Cola, theyâ€™ll have more impact than ever, they argued:
Despite our 66% annual compound growth rate (70% in 2007), we still arenâ€™t reaching all the people we want to reach. Our business has inspired many … but we also want to see Honest be a change agent through our own actions. When we buy 2.5 million pounds of organic ingredients, as we did in 2007, we help create demand for a more sustainable system of agriculture, one that doesnâ€™t rely on chemical pesticides and fertilizers. But when we buy ten times that amount, we help create a market that multiplies far beyond our own purchases. When we sell 32 million bottles and drink pouches with less than half the calories of mainstream alternatives, as we did in 2007, we help displace 2,400,000,000 empty calories. Thatâ€™s important, but when we sell ten times that number, we help lead a national shift toward healthier diets.
Hmmm. Half the calories of â€œmainstream alternatives.â€ Could that be â€œmainstream alternativesâ€ like Coke? Seth may like the fact that his drinks helped displace â€œempty caloriesâ€ but I wonder how his investors in Atlanta feel about that claim.
As Sam Fromartz, author of Organic Inc., writes on his lively blog, Chews Wise:
I get the bigger is greener and more healthy part. But remember, you’re getting into bed with the people who put high fructose corn syrup on the map. You’re selling equity to the same people you want to displace. Is there something wrong with this picture?
As it happens, I spent my day in Atlanta interviewing a series of Coke executives who are working on sustainability issuesâ€”water, climate and energy, and packagingâ€”and came away impressed. Among those I met was Jeff Seabright, a former Clinton administration official who worked on climate change and now oversees Cokeâ€™s sustainability work. It turns out that Jeff and Seth had spent time together a few months ago at the Net Impact conference in Nashville, talking about Cokeâ€™s values.
Spurred on by the companyâ€™s outgoing CEO, Neville Isdell, these executives are working to make Coke â€œwater-neutral,â€ meaning that it returns as much water to communities as it uses to make its beverages. They are aiming to transform the commercial refrigeration industry and make it free of HFC, a potent greenhouse gas, which is no easy task and provides no immediate business payoff. And they are designing packages that are lighter and easier to recycle, promoting recycling nationally, and building the worldâ€™s largest PET recycling plant, all in an effort to make Coke’s packaging more sustainable. Coke is long way from realizing any of these goals but it is moving in the right direction, investing many millions of dollars its green initiatives and working with a range of partners, from the World Wildlife Fund to Greenpeace.
More about all that another day. But I think that thereâ€™s a chance that Seth and his colleagues at Honest Tea will find they have a good deal in common with their new friends at Coke.