The Coca-Cola Co., the world’s biggest beverage company, moved to expand its operations in the fast-growing Chinese market Wednesday with a $2.5 billion bid for major juicemaker China Huiyuan Juice Group Ltd.
Under the deal, Coca-Cola’s wholly-owned subsidiary Atlantic Industries would purchase the Chinese company’s shares for 12.20 Hong Kong dollars ($1.56) each, almost triple their last closing price, the companies said in a joint statement to the Hong Kong stock exchange. That would value the Beijing-based juice producer at around HK$17.9 billion ($2.3 billion).
Coca-Cola also offered to pay for all outstanding convertible bonds and options, bringing the total amount of the deal to as much as HK$19.6 billion ($2.51 billion).
According to research firm Dealogic, it is the largest-ever deal in China’s food and beverage industry.
If approved by regulators, the acquisition would mark Coca-Cola’s biggest in China since it began operating in the country in 1979 and boost its market share overseas at a time when U.S. soda sales are slowing.
Huiyuan is China’s leading maker of pure fruit juices and nectars with about 31 production facilities. Analysts estimate it has about 42 percent of the pure juice market.
“Huiyuan is a long-established and successful juice brand in China and is highly complementary to the Coca-Cola China business,” Coca-Cola CEO Muhtar Kent said. “This acquisition will deliver value to our shareholders and provide a unique opportunity to strengthen our business in China.”
Already a heavyweight in the carbonated-drink market, Coca-Cola would now become dominant in China’s three major juice segments, said Renee Tai, senior vice president of research at CIMB-GK Securities Pte Ltd in Hong Kong.
The Atlanta-based company also would benefit from Huiyuan’s customer base, well-known brand, distribution network and access to local orchards as demand for premium juices like Huiyuan’s rises along with Chinese personal incomes.
“They’re upping their investment in the strategy because this is a growing market,” Tai said. “And they probably realize to build their own brand would cost more.”
Even so, Coca-Cola is paying a relatively high premium. The deal values the company at more than 45 times Huiyuan’s 2008 earnings estimates, according to Thomson Financial.
“There are anticipated synergies that will drive operational and cost efficiencies, particularly in Huiyuan’s production footprint and in The Coca-Cola Company’s distribution and raw material purchasing capabilities,” the companies said in their statement to the exchange.
Huiyuan said it has secured “irrevocable undertakings” from three large shareholders, accounting for 66 percent of the company’s shares, to accept the deal, the companies said. They include French dairy company Group Danone SA and U.S. private equity firm Warburg Pincus.
Once completed, the deal could cut Coca-Cola’s earnings by 3 cents to 4 cents a share in the first year before boosting them in the third, the company said.
Coca-Cola said it plans to keep Huiyuan’s brand name.