Coca-Cola makes record bid for Chinese juice firm

Coca-Cola has bid $2.5bn (£1.4bn) for a Chinese juice-making company in what is thought to be the country's biggest foreign takeover.

The world's largest soft drinks manufacturer is buying Huiyuan to increase its market share and tap into a growing demand for healthy beverages.

The bid of HK$12.20 (86p) a share in cash - nearly three times Huiyuan's last closing price on the Hong Kong stock market of HK$4.14 - values the juice producer at around HK$17.9bn. But Coca-Cola will also pay for all outstanding shares, bonds and options, bringing the total amount of the deal to as much as HK$19.6bn.

Numerous attempted acquisitions by foreign companies have fallen foul of regulatory red tape and other complications in China. But the Beijing-based firm's shares soared by 170% following the companies' joint statement to the Hong Kong stock exchange, which announced that Huiyuan had secured "irrevocable undertakings" from its three largest shareholders to accept the deal. They include Zhu Xinli, Huiyuan's founder and president, who has agreed to sell his 42% stake, and Group Danone SA, which owns 23%.

According to Thomson Reuters, the only larger acquisitions by foreign companies in China have been for minority stakes in the country's banks.

Research firm Dealogic described it as the largest-ever deal in the country's food and beverage industry.

Coca-Cola has a long history in China, being the first US firm to distribute its products following economic reforms in 1979. Initially it imported the bottles and was allowed to sell them only to foreigners at selected stores.

But its Olympic sponsorship deal - estimated to have cost as much as $400m (£225m) for partnership rights and associated marketing - indicates the dramatic increase in the scale of its ambitions in the country.

With soft drink sales in the US slowing, Coca-Cola has said it expects more than 80% of future growth to come from other countries, including China. Last year, the president of Coca-Cola China said he expectedthe country to become its largest market in the long term. But while Olympic sponsorship appears to have rewarded the flagship brand, which has enjoyed substantially higher sales, the company is also looking to other parts of the beverage market. Its overall sales in China surged 22% in 2007 as the company focused on non-carbonated drinks, the official Xinhua news agency reported this year.

Sales of fruit and vegetable juice in China grew 187% in the five years to 2007 - twice the pace of carbonated drinks - to 10 billion litres, according to Euromonitor International.

"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," said Emma Liu, an analyst with Nomura Securities.

"Huiyuan is a long established and successful juice brand in China and is highly complementary to the Coca-Cola China business," said Muhtar Kent, the chief executive of Coca-Cola.

In their joint statement to the exchange, the companies added: "There are anticipated synergies that will drive operational and cost efficiencies, particularly in Huiyuan's production footprint and in the Coca-Cola Company's distribution and raw-material purchasing capabilities."

The deal values the company at more than 45 times Huiyuan's 2008 earnings estimates, according to Thomson Financial.

Renai Tai, a food and drinks analyst at CIAM Group in Hong Kong, said the deal was "very expensive". But she told the Associated Press news agency: "They probably realise that to build their own brand would cost more."

Huiyuan has 42% of the pure juice market and leads the wider juice sector - including nectars - with 10.3% of the market, compared with Coca-Cola's 9%, according to Euromonitor.

Founded in 1992, and first listed in Hong Kong last year, Huiyuan has more than 30 factories across China and produces 500 food and drink lines. It also exports to 30 countries, including the US.