HONG KONG (AdAgeChina.com) -- Coca-Cola Co. wants to expand its non-carbonated drinks business in China by acquiring the mainland's largest producer of pure fruit juices for $2.4 billion.
Coke has made a cash offer to purchase China Huiyuan Juice Group, a Hong Kong-listed company that owns the Huiyuan juice business throughout China. The U.S. beverage giant is offering $1.56 per share, and an equivalent price for outstanding convertible bonds and options, to buy approximately 66% of Huiyuan's shares. ArcelorMittal also failed when it tried to take over local steel company China Oriental last year.
"Huiyuan is a long-established and successful juice brand in China and is highly complementary to the Coca-Cola China business," said Muhtar Kent, Coca Cola's Atlanta-based president and CEO. The acquisition "will provide a unique opportunity to strengthen our business in China, especially since the juice segment is so dynamic and fast growing in China."
A stormy debate broke out following Coke's announcement about the proposed Huiyuan takeover on Sept. 3.
If approved, the aquisition will be one of the largest foreign takeovers to date in China, making it a test case for an anti-monopoly law passed just last month.
The two companies dominate different segments of the market. Coke is a leading player in the low end of the fruit drink market with brands like Minute Maid while Huiyuan dominates the pure fruit juice segment. Together, the companies would control 37% of China's total juice drink market, according to a Merrill Lynch report.
The deal will also test about China's willingness to let local firms fall under foreign control, something it has been loathe to do in the past. Carlyle Group, for instance, recently ended a three-year unusccessful bid to buy a significant stake in Xugong Group, China's largest manfucturer of construction equipment.
Coke has stayed quiet about the storm it has created. "It would be inappropriate for us to comment on the actual regulatory approval process. The making of the offers is subject to preconditions relating to Chinese regulatory approval. We will be working with relevant authorities to secure the required approvals," said a spokesman in Hong Kong, Kenth Kaerhoeg.
Huiyuan has an uneven ad strategy
Cooperation with Coca-Cola could give Huiyuan valuable expertise. The company has created a strong juice production and distribution network, but has delivered an uneven performance in marketing its brands.
Last year, Huiyuan launched an aggressive ad campaign, created and led by foreign expertise from Danone Group, which controlled about one-fifth of the company at the time. In a bid to raise its profile among urban young adults, Huiyuan signed a partnership deal in 2007 with MTV Networks to sponsor all of MTV China's events in China throughout the year.
Huiyuan also appointed JWT and DraftFCB to handle creative for its main Huiyuan brand and sub-brand, Guo Xian Mei, respectively. The relationships were short-lived. Earlier this year, Huiyuan ended both relationships without explanation and Huiyuan currently does not work with any multinational agencies.
Agency executives who worked with the company declined to comment on the record, but said Huiyuan directors slashed its marketing budget and fired the foreign ad firms after Danone eased its executives out of the company. The French company sold its shares to Coca-Cola earlier this month.
Coke eager to expand juice sales in China
Coke has sold carbonated beverage brands such as Coca-Cola, Sprite and Fanta in China since 1979. In recent years, the company has focused on expanding its portfolio with tea and juice products that are more popular with many Chinese consumers than sugary soft drinks.
Guo Li Chen (Minute Maid Pulpy) and Yuan Ye (Original Leaf Tea) are two of the new brands introduced by Coke in China recently. In Hong Kong, it has also introduced a green tea brand, Tian Yu Di (Heaven and Earth). Tian Yu Di is also a water brand in China.
Coke could get a major boost by acquiring Huiyuan, and not just from its line-up of popular juice brands. The Chinese company also has substantial distribution and raw material purchasing capabilities.
Founded in 1992, Huiyuan is one of the largest Chinese companies marketing fruit and vegetable juice and juice drinks. According to AC Nielsen, Huiyuan is the No 1 producer in China of 100% pure juice. Huiyuan had a 37.9% share of that market at the end of last year, according to CCB International Securities.
Among non-100% juice drinks, Huiyuan has a 6% share, which it hopes to raise through the introduction of new products, like a kiwi drink introduced under the brand name V-plus. Last fall, Huiyuan announced plans to invest $66 million to build new plants to meet growing demand in China for health drinks.
In March 2007, Wal-Mart Stores said it would start carrying Huiyuan fruit juice products in more than 3,000 stores in the U.S. Huiyuan has sold its products, mainly apple juice, in the U.S. since 2004, but the deal with America's largest retailer greatly expanded its retail distribution in the U.S.
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