The Coca-Cola Company has agreed to pay $2.5 billion for Chinese juice maker Huiyuan, three times its value, in China’s biggest takeover by a foreign company.
US-based Coca-Cola, which has offset flat sales at home by expanding globally, dominates a growing Chinese market for diluted juice and now hopes to make inroads into the untapped pure juice sector.
In a fragmented Chinese consumer industry, major acquisitions have slowed to a trickle as companies grapple with fierce competition and a slide in margins. Analysts said local brand names were known to resist foreign control.
Huiyuan, in which France’s Danone owns more than one-fifth, controls 10.3 percent of China’s market for fruit and vegetable juice, which grew 15 percent last year. It is followed by Coca-Cola, with a 9.7 percent share.
China is already Coca-Cola’s fourth-largest market and a crucial battleground with rival Pepsi Company given flat North American sales in the first quarter. At 15.5 percent, Coca-Cola has twice Pepsi’s share of the Chinese soft drink market.
Coca-Cola was paying a high premium for a firm it hoped would strengthen its grip on China’s juice market, analysts said. It might have plans to sell Huiyuan’s drinks abroad.
“The move is a big surprise to the market and the offer is supergenerous,” said Lawrence Chor, an analyst at Tai Fook Securities. “It’s very possible Coca-Cola will leverage the Huiyuan brand, acquire other Chinese juice makers, then boost their output for export.”
Coca-Cola agreed to pay HK $12.20 a share in cash - 43 times Huiyuan’s forecast 2008 earnings and nearly triple Friday’s close of HK$4.14 - for the 16-year-old firm. Huiyuan shares soared 170 percent to an 11-month high. Three shareholders holding a combined 66 percent in Huiyuan, including Danone, had agreed to sell their stakes, Coca-Cola.
Coca-Cola will now make an offer for all shares, bonds and options in Huiyuan, and plans to take the company private.
The purchase is the largest takeover in China, where inbound acquisitions are notoriously difficult given red tape and state dominance of the corporate sector. Nationalistic pride often triggers protests when foreign firms gain influence over domestic firms.
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