The deal, which will cost Coke more than 20 million kroons ($1.08 million), according to sources, will also include Osel Foods' Latvian kvass brand Pilskalna.
Kvass - an old Russian concoction of rye, sugar and yeast - was a very popular drink during the Soviet era, when it could be bought for a few cents a cup on the street directly from half-ton metal tanks.
The drink disappeared from the market in 1988 and was re-introduced again in 1998. The Linnuse Kali brand became very popular among local consumers when it was introduced three years ago.
Today, Linnuse Kali controls about 62 percent of the kvass market and 10 percent of the soft-drink market.
According to Kuldar Leis, Osel Foods' board chairman, kvass is not so popular today and its sales are very much influenced by the weather.
"The hot summer of 1999 was our peak sales period. The demand was very high. The brand came quickly and successfully on the market, but it has not stayed at that level. Last year the drink was not so popular," said Leis.
This year the company expects to produce 4 million liters of Linnuse Kali. Pilskalna's market share is about 2 percent, Leis said.
Osel Foods official said they decided to sell the brand to Coca-Cola and concentrate on the production of the fruit juice Aura, which hit the market last fall.
During the next few months Osel Foods will continue to produce Linnuse Kali under agreement with Coca-Cola at its plant in Tartu until production is moved to Coca-Cola's plant in Tallinn.
Aki Hirvonen, marketing manager for Coca-Cola Baltic Beverages, said that his company was interested in acquiring the two brands because of their potential in Estonia and Latvia. Coca-Cola is at present producing kvass in Lithuania under the brand name of Frisco.
"Kvass has a lot of growth opportunities in the Baltics," said Hirvonen. "The traditional Coca-Cola products strongly appeal to younger Estonians, and now we can attract even more Estonians, namely the people on the other side of 30."
He said that Coca-Cola hopes to extend kvass production to Western markets in the future.
According to Hirvonen, soft drink consumption is low in the Baltic states and Coca-Cola's aim is to increase the volume of the overall soft-drink market.
"Our biggest competitors are outside the soft drink market. The consumption of coffee, tea and milk is really high," he explained.
Coca-Cola ended last year with a 20 million kroon loss in Estonia, while in Latvia the loss was nearly twice as high.
Although the price of the deal was not disclosed, Olari Taal, the CEO of AS Osel Foods, told the weekly newspaper Eesti Ekspress that it was a profitable deal.
"Would you sell your shirt if you were offered 10,000 kroons? Of course you would," said Taal.
Besides kvass and juice, Osel Foods makes lemonade, mineral water, mayonnaise and ketchup. The company employs about 80 people and its turnover was 80 million kroons last year. Osel Foods ended last year with a loss of 2.6 million kroons caused mostly by the investments into its juice production. Half of the company belongs to the Finnish businessman Carl-Eerik Sunbald, while the other half is shared by Estonians Tullio Liblik and Toivo Alt.