Strike it rich

Hong Kong, Sept.3 (Reuters): Coca-Cola will pay $2.5 billion for Chinese juice maker Huiyuan, strengthening the world’s leading drinks maker’s hold on a booming market, in the biggest foreign takeover in China.

The US firm will pay HK$12.20 a share in cash — 43 times Huiyuan’s forecast 2008 earnings and nearly three times its Friday close of HK$4.14, sending the Chinese firm’s shares up 170 per cent.

Major acquisitions have slowed to a trickle in past years in a fragmented Chinese consumer industry as companies struggle with competition and a slide in margins. Local brand names also resist foreign control.

Coca-Cola dominates the Chinese diluted-juice market and hopes to make inroads into the pure-juice sector, analysts say.

“Coca-Cola is looking to tap the pure juice market where Huiyuan is the market leader,” said Emma Liu, an analyst with Nomura Securities.

“Though it’s a relatively small market in the beverages space, its potential is high because of the growing personal income in China and increased health awareness,” she said.

The Chinese juice market — encompassing pure juice, diluted juices and nectars — is expected by analysts to grow at above 10 per cent in coming years alongside rising incomes, benefiting Huiyuan, Tingyi, Uni-president and others.

Huiyuan controls about 43 per cent of the pure-juice market, according to AC Nielsen figures cited by the company.

“They are in the same industry and it will take a lot of effort to build a brand name, especially in China,” said Andrew To, sales director at Tai Fook Securities Co Ltd. “The premium is being paid for Huiyuan’s brand name and sales network,” he said.