Coca Cola Bids $2.5 B for Huiyuan Juice

123jump.com Staff
03 Sep, 2008
New York City

Coca-Cola Company agreed to acquire China Huiyuan Juice Group for HK$19.6 billion or $2.5 billion including convertible bonds and diluted shares. The agreement values the juice maker at HK12.20 a share, nearly three times is most recently traded price near HK$4.10 a share. The offer values the company at 17 times operating earnings of 2007.

[R]6:00AM New York, 6:00PM Hong Kong- Coca Cola in $2.5 billion bid for China Huiyuan Juice.[/R]

Market Sentiment

In Hong Kong trading Hang Seng Index declined 2.2% or 457.40 to 20,585.06, and the China Enterprises Index of the Hong Kong listed mainland shares, or H shares, fell 3.29% or 376.32 to 11,076.83. In Shanghai trading CSI 300 Index plunged 1.73% or 39.45 to 2,245.96. Daily turnover on main-board was HK$56.1 billion from HK$49.4 billion yesterday.

Coca-Cola Acquires China Huiyuan Juice

Coca-Cola Company agreed to acquire China Huiyuan Juice Group for HK$19.6 billion or $2.5 billion including convertible bonds and diluted shares. The agreement values the juice maker at HK12.20 a share, nearly three times is most recently traded price near HK$4.10 a share. The offer values the company at 17 times operating earnings of 2007.

Coca-Cola agreed to pay a steep premium for a company that has the largest market share in pure juice category and is well known in the country. Huiyuan Juice, raised $300 million in its recent public offering in 2007 in Hong Kong. Group Danone SA based in France which holds 23% stake in the company agreed to sell its stake.

Juice market is China is expected to rise at more than 15% in 2008 and is estimated to double in the next four to five years on rising disposable income and health awareness.

Revenue of Huiyuan Juice in 2007 rose 28.6% from a year ago to Rmb 2.65 billion and net income in the period surged 189% to Rmb 640 million with earnings per share of Rmb 35.9. As of 31 December 2007, the Group had 3,804 distributors, 8,000 sub-distributors and 3,900 sales representatives. According to AC Nielsen, Huiyuan Juice is the largest 100% juice series and nectars producer in China, ranked by sales volume.

Huiyuan Juice’s products comprise three main categories including 100% juice, nectars and juice drinks. Revenues in 2007 from nectars increased 31.8% to Rmb 1,120.5 million, accounting for 44.8% of the Group’s revenue from juice products. The sales growth rate of 100% juice was the highest among the three categories. Revenue of 100% juice increased 48.1% to Rmb 596.0 million on higher prices and increase in sales volume of small servings.

Sales of juice in China rose 15% last year to 13.6 billion yuan or $1.99 billion and sales volume rose 12.3% to 2.57 billion liters, based on AC Nielsen data provided by Huiyuan. The largest juice company controls 43% of China market and estimates sales to increase nearly five-fold in the next three to five years as the company increases market share.

The private equity investor Warburg Pincus is expected to reap solid rewards from its 7% stake acquired at $65 million which is now valued at $175 million in the deal. Royal Bank of Scotland advised Coca Cola and Huiyuan Juice was advised by Goldman Sachs.

China Huiyuan Juice rose 164% to HK$10.94 on news of a $2.5 billion takeover by Coca-Cola.

Wal-Mart Establishes Regional Headquarters in HK

Xinhua News Agency reported that U.S. retailer Wal-Mart Stores Inc. reported that it has established its Asia regional headquarters in Hong Kong.

The Wal-Mart office in Hong Kong will supervise company's operations in the Chinese mainland, India and Japan, and identify new business opportunities in the region.

According to president and chief executive officer for Wal-Mart Asia Vicente Trius, Hong Kong is centrally located and offers ready access to markets across the region. In addition, Hong Kong has good transportation, communications and technology infrastructure.

About 3,900 overseas and Chinese mainland companies operate regional headquarters or regional offices in Hong Kong.

Falling Crude Oil Good for China Economy

Crude oil futures for October delivery dropped 8.7% to $108 per barrel after hurricane Gustav became weaker-than- expected. Falling crude oil will help China to tame inflation by easing the countries import bill. China imports more than 50% of its energy requirements. In 2007, China’s crude oil imports rose 12.4% from a year ago to 163 million tons.

Asian Development Bank economist Zhuang Jian explained that declining crude oil prices will positively impact on oil refiners whose profits have been affected by soaring oil prices and lower domestic price.

China Petroleum and Chemical Corporation said it realized losses of Rmb46 billion in the refining sector despite government subsidies of Rmb33.4 billion.

Gainers & Losers

Stocks in Hong Kong fell markedly led by falling commodity stocks as oil prices dropped the most in five months.

China Huiyuan Juice rose 164% to HK$10.94 on news of a $2.5 billion takeover by Coca-Cola.

Commodity stocks fell after crude oil prices tumbled by about 8.7% to US$108 per barrel on news that Hurricane Gustav will not adversely affected oil rigs off the Gulf of Mexico.

CNOOC lost 6% and PetroChina fell 3.2% as a result. China Shenhua Energy declined 4.6% and China Coal Energy fell 5.4%.

Aluminium Corp of China dropped 6.4% as prices dipped to a seventh month low.

China Cosco tumbled 9.5% and China Shipping Development slid 8.7% after an index tracks the ocean freight charges fell to a seven month low yesterday.

China Mobile shed 2.7% to HK$86.40 on lingering uncertainty of the post restructuring period in the telecommunications industry. Financial stocks slid on worries over the economic slowdown. ICBC 3% and China Construction Bank fell 1.9%.