In 1986, Coca-Cola (KO) split off its North American bottling division into a separate company, Coca-Cola Enterprises (CCE). Then PepsiCo (PEP) followed suit, as both soft-drink makers moved to add some flexibility to their balance sheets.

Now, Coke is following Pepsi in a transaction that reverses the spinoffs of yesteryear. Coke is acquiring the North American operations of Coca-Cola Enterprises in what the company calls a "cashless" deal that is worth about $13 billion. Last year, Pepsi coughed up about $8 billion to buy back two of its bottling partners, The Pepsi Bottling Group (PBG) and PepsiAmericas (PAS). The Pepsi deals has been approved by shareholders and the merger should close by the end of this month.

Bottling and distribution didn't get much respect from the big makers of flavored fizzy water back in the 1980s. Bottling tied up capital in an enterprise that yielded not much in the way of profit. It resembled the relationship between the large integrated oil companies and their pipeline operations.

 So, just as virtually every oil company shed its pipeline operations, the two big soft-drink makers shed their bottlers. Now, though, the shoe is on the other foot.

The bottlers are throwing off cash at a very nice clip, and both Coke and Pepsi want to get their hands on it. CCE produced operating cash flow of about $1.8 billion in 2009, which Coke will now get to add to its own $7.5 billion in operating cash flow.

Pepsi Bottling Group and PepsiAmericas generated total operating cash flow in 2009 of a nearly identical amount, while Pepsi generated operating cash flow of about $7 billion. As Coke's chairman and CEO noted, "With this transaction, we are converting passive capital into active capital, giving us direct control over our investment in North America to accelerate growth and drive long-term profitability."

Under the terms of the deal between Coke and CCE, Coke relinquishes its 34% stake in CCE and assumes about $9.5 billion in CCE's debts. CCE will pay its other shareholders a  special $10/share dividend and buy back about $1 billion of its own shares. The companies expect the deal to close in the fourth quarter of 2010.

Both Coke and Pepsi need to figure out ways to juice up profits. Owning the bottlers gives them the flexibility to introduce new products, such as juice drinks and water, more quickly and more cheaply.

Coke shares were trading down about 3.4% this morning, while CCE shares hit a new 52-week high and were up more than 30%. No surprise there, though the whole market is down this morning on continuing concern that the global economic recovery is stalling.

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