Coca-Cola has tabled a bid to buy China's leading juice maker China Huiyuan for a sizeable premium, in what would represent the biggest takeover by a foreign company in China.
The all-cash deal of US$2.5bn, which values Hong Kong-listed Huiyuan at almost three times its closing price last Friday, still requires regulatory approval.
China is already Coke's fourth largest market, where it controls over 15 per cent of the soft drinks market, more that twice the share of rival PepsiCo. But the bid for China Huiyuan is aimed at diversifying its drinks portfolio in China where the carbonated drinks market is slowing down while demand for diluted and pure juices takes off.
Michelle Huang, an analyst at Euromonitor International, told the Financial Times that the sales volume of fruit juices in China overtook that of carbonated drinks for the first time last year. China's fruit and vegetable juice market was worth US$10.6bn at the end of last year and is growing at annual rate of 18 per cent, she estimated.
AC Nielsen data from China Huiyuan, meanwhile, put juice sales in China at Yn13.6bn (US$1.99bn) last year, up 15 per cent on the previous year. Reuters reports that the Chinese juice market - encompassing pure juice, diluted juices and nectars - is predicted by analysts to grow by more than 10 per cent in the coming years, aided by rising incomes.
China Huiyuan, which is more than one-fifth-owned by French group Danone, controls over 10 per cent of the Chinese fruit and vegetable juice market, according to Reuters. It is followed closely by Coca-Cola whose share is 9.7 per cent, the news agency reported.
"Coca-Cola is looking to tap the pure juice market, where Huiyuan is the market leader," Emma Liu, an analyst with Norma Securities, told Reuters. "Though it's a relatively small market in the beverages space, it's a high growth market because of the growing personal income in China and increased health awareness."
Huiyuan claims to control about 43 per cent of China's pure-juice market, and it predicts that it sales will grow five-fold in three to five years to reach Yn10bn.
Qu Honglin, a senior partner of Glocal Strategy Consulting Co, told China Daily that the deal would see Coca-Cola "convert its largest rival in soft drinks into its subsidiary".
Three shareholders holding a combined 66 per cent in China Huiyuan – including Danone, Warburg Pincus and Zhu Xinli, Huiyan's chairman – have already agreed to sell their stakes, according to Coca-Cola. The multinational drinks giant will now make a general offer for all shares, bonds and options in China Huiyuan with the aim of taking the company private, but the deal still needs to gain the approval of the Chinese authorities.
As the acquisition represents the first major deal since the country's anti-monopoly law came into effect on 1 August, it is likely to face intense scrutiny from the regulators.