LITTLE ROCK — Coca-Cola Co. agreed to buy China Huiyuan Juice Group Ltd. for $2.3 billion, doubling its share of the nation's fruit-juice market with the company's largest overseas acquisition.
The world's biggest maker of soft drinks will pay $1.56 a sharein cash, triple the last closing price of 53 cents, the companies reported in statements Wednesday. Huiyuan shares closed at $1.40 in Hong Kong.
Chief Executive Officer Muhtar Kent's second acquisition since taking over in July will boost Coca-Cola's share of China's fruit-juice market, forecast to grow 16 percent this year, to about a fifth. Coca-Cola, expanding in Asia as sales growth slows in North America, will pay more than twice the valuation of Huiyuan's closest local rival.
"It's a bit expensive, but it's better than building everything from zero," Fiona Wong, con-sumer analyst at Sun Hung Kai Securities Ltd. in Hong Kong, said in a telephone interview Wednesday. "The Huiyuan brand is very well known in China."
Coca-Cola's purchase of Huiyuan, which is subject to Chinese regulatory approval, would be the biggest foreign takeover of a company in the nation, according to data compiled by Bloomberg.
The deal values Huiyuan at 46.6 times this year's estimated earnings, according to Bloomberg data. Uni-President China Holdings Ltd., the Shanghaibased maker of fruit drinks and instant noodles, trades at 20.03 times estimated earnings.
Coca-Cola declined 30 cents Wednesday to close at $51.66 on the New York Stock Exchange. Huiyuan shares had fallen 49 percent this year until Aug. 29, when the stock was halted pending Wednesday's announcement.
Chinese fruit and vegetable juice sales will probably grow 16 percent to $12.3 billion this year, according to Euromonitor International. That's more than double the growth of carbonated drinks, forecast to rise 7 percent to $7.94 billion.
The acquisition shows that "global players still value exposure to China," which has the world's worst-performing stock market this year, said Shi Bin, who manages the equivalent of $1.8 billion at UBS Global Asset Management (Hong Kong) Ltd., from Seoul, South Korea. "Mergers and acquisitions like this will provide strong support to the market."
Coca-Cola, with a market value of $120 billion, has said it expects more than 80 percent of growth to come from non-U.S. markets including China. The company's sales by volume in China rose 18 percent last year.
Coca-Cola's biggest acquisition was Energy Brands Inc.'s Vitaminwater, based in Queens, N.Y., for $4.1 billion last year. Its first purchase under Kent was Agua Brisa, SABMiller PLC's Colombian bottled-water unit, for $92 million last month.
Huiyuan is the biggest fruit and vegetable juice company in China by market share with 10.3 percent, followed by Coca-Cola with 9.7 percent, according to Euromonitor. The Beijing-based company had 42.6 percent of the market for 100 percent juices last year, Huiyuan said March 31, citing ACNielsen.
Established in 1992, Huiyuan sells about 220 beverage products including fruit and vegetable juices as well as nectars, with a majority of them sold under its brand name. It also has the "Quan You" brand and children's juice products sold under the "Le Le Yuan" brand.
Huiyuan products are sold mostly in China, but also in the U.S. and Southeast Asia including the Philippines and Singapore.
Zhu Xinli, Huiyuan's founder and president, has agreed to sell his 42 percent stake and will become honorary chairman after the takeover. Group Danone SA, the second-largest shareholder with 23 percent, also agreed to sell. Xinli was formerly deputy director of the foreign economic and trade department of Yiyuan County in China's eastern Shandong province.
Huiyuan raised $307 million in a Hong Kong initial public offering in January 2007. Net income tripled to $93 million last year on sales that grew 29 percent.
Coca-Cola's operating profit margin was 39 percent last year for the division that includes North Asia and the Middle East, compared with 22 percent for North America. Both units account for about a quarter of operating income.
The deal will help Coca-Cola make savings in raw materials such as packaging and fruit and allow expansion into "other beverages," Kenth Kaerhoeg, spokesman for Coca-Cola Asia, said in a telephone interview Wednesday. "The more packaging and fruit you buy, the bigger discount you get."
Coca-Cola plans to keep the Huiyuan brand.
Information in this article was contributed by Kyung Bok Cho of Bloomberg News.
Business, Pages 27, 32 on 09/04/2008