Coca-Cola’s juicy bet on China consumers

Coca-Cola’s juicy bet on China consumers
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First Published: Wed, Sep 03 2008. 11 47 PM IST
Updated: Wed, Sep 03 2008. 11 47 PM IST
Want proof that China’s breakneck growth is the world’s worst-kept secret? Look at Coca-Cola Co.’s $2.4 billion (Rs10,632 crore) offer for China Huiyuan Juice Group Ltd.
Coke is paying a multiple of six times Huiyuan’s 2007 revenues, a premium over Coke’s four. The price equals almost 50 times Huiyuan’s expected earnings this year, and almost 200% premium to the juice-maker’s share price on Friday.
This being China, such numbers don’t tell the full story. China’s increasing affluence and taste for premium products favour Huiyuan, whose sales are growing at about 30%. Astonishingly, it expects that pace to speed up to almost a 40% rate over the next five years. That may not be mere bravado. Chinese consumers glug a fortieth of the volume of fruit juice their European and US counterparts put away. As they get richer, they are likely to drink much more of this premium product.
It’s hard for foreign companies to take Chinese firms over; bureaucracy, culture clashes and reluctant sellers get in the way. Huiyuan is rare in that it is controlled by two private investors, both willing to sell—Groupe Danone SA of France, and chairman Zhu Xinli, who between them hold 65%.
Danone gets a juicy deal. Having paid around $140 million for its initial stake, and then topped that up with $140 million, it should cash out for $528 million. Not bad for an investment that only two days ago was in the red.
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First Published: Wed, Sep 03 2008. 11 47 PM IST