"The approval of the acquisition faces many difficulties," said Mei Xinyu, a researcher at the Chinese Academy of International Trade and Economic Cooperation, a government think tank that is under the Ministry of Commerce. "There are two main difficulties. One is the large size of the two companies, which will raise concerns about monopolies," Mei told Xinhua. "The second is that the brand of Huiyuan is considered to be protected as a famous domestic brand," he said.
However others are upbeat about the deal. Chen Shuwei, a senior analyst for consulting firm Beijing Orient Agribusiness, said Chinese regulators are likely to approve the acquisition within several months.
Coke has been steadily acquiring makers of juice, water, and other non carbonated drinks around the world in recent years to broaden its portfolio and beat back competitors in segments. Earlier, as part of its global efforts to expand beyond carbonated drinks, Coca-Cola acquired Russian juice business Multon in 2005 and Mexico's second largest juice, nectar and fruit flavored beverage producer Jugos del Valle, last year.
The offer of roughly $2.4 billion is the largest by Coca-Cola since it paid $4.1 billion for Glaceau in May 2007. If completed at $2.4 billion, Coke’s earnings per share would fall between 3 and 4 cents in the first following year, the company said in its press release.
"The deal fits well with Coca Cola’s strategy," he said. "Chinese demand is shifting toward healthier drinks and Huiyuan will provide channels for selling fruit drinks."
Presently, the Coca-Cola Company (KO) is trading at its 52-week range bottom ($49.44-65.59). Warren Buffett’s Berkshire Hathaway (BRK.A) is the second largest holder of KO stock with a $10.4 billion investment in the company. However of late, Analysts are beginning to move away from the stock.
The deal underlines two things. Firstly, Coca Cola is quite determined about making a serious inroad into the Chinese beverage market. Secondly, it also wants to diversify its portfolio. The deal marks a shift towards non carbonated and pure juice market, away from carbonated drinks.
The company already intended to expand in China. Earlier, in October, Coke and the China Academy of Chinese Medical Sciences had opened "a research center in Beijing.
Moreover, the US firm is paying a rich price for the takeover: - it is paying nearly 12.20 Hong Kong dollars per share in cash, three times its price on Friday and more than double its February 2007 initial public offering price. The offer equals 43 times Huiyuan's estimated earnings this year. The news of the takeover sent the Chinese firm's shares up 170 percent on Wednesday.
In the Chinese juice market, Coca-Cola has already established its presence with the star product of "Minute Maid Orange Pulp". It is said in the annual report of Coca-Cola that this product unit case volume in China grew more than 60% last year and is the No. 1 juice brand in the key metropolitan markets.
