AP Peruvians are immensely proud of the soda named after the Inca dynasty that ruled the region before the European conquests

After two years of negotiations, U.S.-based Coca-Cola said it would take a half-interest in Inca Kola Peru, a unit of JR Lindley Corp., whose bubble gum-flavored, yellow-colored soda is a local favorite that has evolved in a symbol of national independence in Peru. Coke will also take a 20 percent stake in Lindley as part of the agreement.

For years, Inca Kola has held a slightly higher market share than its competitor's top product, Coke, with each commanding about a third of Peru's soft-drink sales.

Financial terms were not disclosed, but a financial source in Lima and U.S. investment bankers said the deal, hammered out by Coca-Cola Chairman Douglas Ivester, would cost the U.S.-based multinational $200 million, including an unspecified future investment in the Peruvian company.

"Together we are going to strengthen Inca Kola in Peru and expand into the international market," Timothy J. Haas, head of Coca Cola's Latin American division, told reporters in Lima at a press conference announcing the deal.

Coca-Cola, the multinational company based in Atlanta, is the dominant beverage supplier in every Latin American country except Peru, where Inca Kola has held a slim market lead.

Peruvians are immensely proud of the soda — named after the Inca dynasty that ruled the region before the European conquests. Inca Kola is considered to be an rare example of a home-grown product that is able to stand up to a U.S. Goliath.

In a country with a yawning gap between rich and poor, Inca Kola also transcends class lines. It is not uncommon to see farmers in the Andean mountains quenching their thirst with open bottles of the soda, or rich bankers sipping it out of crystal glasses in Lima's top restaurants.

Reflecting the drink's popularity and symbolism, the announcement by the companies drew cautious comments from President Alberto Fujimori.

"I would be sad if Inca Kola lost control, however much it wants to enter the international market," the president told reporters after the deal's announcement.

After the news, Lindley's stock Tuesday closed up 6.06 percent on the Lima stock exchange in heavy trading of 900,000 shares.

Coca Cola, promising a "sizable investment," now says its hopes Inca Kola will catch on abroad and expand even more at home. The U.S.-based company will run the international operations of Inca Kola while in Peru Coca-Cola will have an equal partnership in the local operation, company officials said.

For Lindley, the deal ends a battle to thwart Coca-Cola's relentless expansion, an effort that has held back the Peruvian company's profits, hampered its growth and prompted it to seek a partnership that could boost Inca Kola's tiny sales abroad.

U.S. analysts said Coke's true interest in the partnership was buying into the bottling business. And they have doubts Inca Kola would prove popular in markets outside Latin America.

"The reason Coke did this was not to take Inca Kola out of the country — I never heard of it. This is about market penetration. It is a way of penetrating the (Peruvian) market," said Roy Burry, beverage industry analyst at New York-based Brown Brothers Harriman.

Inca Kola currently markets its drinks in the United States and Japan, targeting Peruvian immigrants there. It also exports to neighboring Bolivia and Ecuador, though not enough to stop the company losing money.

Lindley, a family-run company since the beginning of the century, reported net losses that almost tripled last year.

Despite improving sales, Lindley's losses in the first 11 months of 1998 rose to 33 million soles ($9.6 million) compared with a loss of 13 million soles for the whole of the previous year, according to the Lima stock exchange.