The offer underscores Coke's commitment to China, currently the Atlanta-based company's fourth-largest market.
Under the terms of the offer, Coca-Cola's wholly owned subsidiary Atlantic Industries would purchase shares of Huiyuan Juice Group Ltd. for roughly three times its previous closing price on the Hong Kong exchange.
"This acquisition will deliver value to our shareholders and provide a unique opportunity to strengthen our business in China," said Muhtar Kent, Coca-Cola's chief executive officer.
"It is also further evidence of our deep commitment to China and to providing Chinese consumers with the beverage choices that meet their needs," Kent said.
Coke executives secured binding agreements with three Huiyuan shareholders accounting for about 66% of the company before the announcement was made, Coke said in a statement. One of the three shareholders was French food giant Groupe Danone.
If Chinese regulatory officials approve the deal, Coke will look to buy the remaining company shares, said Kenth Kaerhoeg, a company spokesman based in Hong Kong. If Coca-Cola can purchase 90% of Huiyuan's shares, the company will take it off the Hong Kong stock market, Kaerhoeg said.
For Coke, the world's top producer of non-alcoholic beverages, the deal offers a way to strengthen sales of noncarbonated drinks in China and bolster its position in the global juice market.
Between 2001 and 2007, the total value of fruit juice sales in China more than tripled, according to Shanghai-based market research firm Access Asia.
Worldwide, Coke's sales of soft drinks grew by 1% over the most recent quarter, while sales of still beverages -- including juices, teas and water -- jumped 13%. In North America, Coke's largest market, sales of Coke Zero and Glaceau, the maker of Vitaminwater and Smartwater, both posted double-digit increases, while soda sales fell by 4%.
"Coke will get value for their money [with the deal] because they will be looking to supply more than just China with product in a sector where growth is generally stronger than most other soft drink sectors," said Mathew Crabbe, the director of Access Asia.
The deal would also help Coke consolidate its position in China's fragmented and highly competitive market place.
"The only survivors in the next decade or so will be the big players who have the economies of scale to ride out the tough times," Crabbe said.
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 3-4 cents in the first following year, the company said in its press release.
Chen Shuwei, a senior analyst for consulting firm Beijing Orient Agribusiness, said Chinese regulators are likely to approve the acquisition within several months.
"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."
WHAT IT MEANS
* The addition of the Huiyuan Juice Group would broaden Coca-Cola's offerings in the fast-growing Chinese market. Huiyuan would complement Coca-Cola's soft-drink business and give a major boost to its Chinese noncarbonated business, which is growing rapidly with beverages such as Minute Maid Pulpy
From the September 15, 2008, Prepared Foods e-Flash
