The soft drink conglomerate Coca-Cola Co. (KO) a revenue machine. As of 2015, the company owns 20 brands that each generate $1 billion or more in annual revenues, including big names such as Dasani, Odwalla, Minute Maid, Powerade, Sprite and Gold Peak Tea. It also has large ownership stakes in other brands, such as Monster Beverage. However, none of these acquired brands have grabbed market headlines like Glaceau's vitamin water, which was purchased by Coca-Cola in 2007 for a then-company high of $4.1 billion.

The years subsequent to the Vitaminwater purchase saw Coca-Cola's marketing team do wonders; Vitaminwater went from annual sales of $350 million to more than $1 billion. The sweetened water beverage entered new markets and, by nearly any measure, performed very well. Many touted it as Coca-Cola's most ambitious and successful purchase to date.

That argument became muddier after Coca-Cola was forced into a $1.2 million settlement over a Vitaminwater lawsuit in 2013-2014. The lawsuit, filed by residents of Florida, Ohio, Missouri and the Virgin Islands, contested the possibly misleading health benefits tied to the Vitaminwater product.

There is also the question of valuation. Coca-Cola spent in excess of $4 billion for a company with only $350 million in revenues. Some contend the company overpaid, which is something it rarely does when making acquisitions and strategic partnerships.

The Vitaminwater Deal

In 2006, Glaceau Vitaminwater was owned by Energy Brands Inc. and was evaluated at roughly $2.2 billion. Coca-Cola swooped in one year later and eventually purchased the brand for almost double that amount. The $4.1 million acquisition sent shock waves through the soft drink world.

By 2011, Vitaminwater had grown from $350 million in annual revenue to more than $1 billion. A similar story happened with Del Valle, which was purchased by Coca-Cola in 2007 and reached $1 billion in annual sales by 2010.

Changes in marketing, ingredients and the health lawsuit all damaged Vitaminwater over the next several years. Between 2012 and 2013, the dollar sales of Vitaminwater dropped by more than a quarter.

Depending on which income numbers you decide to use, Coca-Cola brought in as much as $47 billion in revenue in 2014. Vitaminwater accounted for approximately $950 million of that amount; it is substantial but nowhere near as big as the major Coke brands: Coca-Cola, Diet Coke, Sprite and Coke Zero.

The Lawsuit

The original lawsuit over Coca-Cola and Vitaminwater actually occurred in 2009 and was filed by The Center of Public Interest, or CPSI. CPSI specifically contested some of the scientific and biological claims that the drink could "promote healthy joints, support optimal immune function, and reduce the risk of eye disease."

Coke responded by changing the sugar content of Vitaminwater. The original drink used a combination of cane sugar and crystalline fructose, but the altered version used a blend of cane sugar and stevia. However, fans of the soft drink rejected the stevia alteration, and Coca-Cola performed an about-face in 2014 and switched back to the original ingredients.

Others quickly joined the CPSI lawsuit, and eventually all of the class-action suits were consolidated into one case. Coca-Cola settled for $1.2 million, but that settlement is being protested by the Truth In Advertising organization, or TINA.

Analyzing the Deal

There are two different aspects of the Glaceau Vitaminwater deal that make it tough to suggest it is Coca-Cola's best purchase. The first, and obvious, is the lawsuits about Coca-Cola's health advertising. The alternating ingredient swaps also damaged Vitaminwater's sales, particularly in 2012 and 2013. They also cost the company legal fees and settlement dollars.

Perhaps the more interesting aspect is, despite the unquestioned growth of Vitaminwater sales since 2007, Coca-Cola probably overpaid for the brand and may have been better off just buying its own shares. The price-to-sales (P/S) ratio of 11.7, for purchase price compared to just sales, not profits, is more than 10 times the ratio it cost for the Del Valle deal. Prior to the deal in 2007, Coca-Cola announced a plan to buy back as much as $3 billion in company stock. After buying Vitaminwater, Coca-Cola lowered that number substantially because of reduced cash flow.

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