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Coca-Cola's Acquisition of China'sHuiyuan JuiceA Juicy Deal?Case studyReference no 309-011-1

This case was written by Swapna Pragada, under the direction ofPasupuleti Girija, ICFAI ~usiness School Case Development Centre. It is intendedto be used as the basis for class discussion rather than to illustrate eithereffective or ineffective handling of a management situation. The case wascompiled from published sources.

@ 2009, ICFA! Business School Case Development Centre.No part of this publication may be copied, stored, transmitted, reproducedor distributed in any form or medium whatsoever without the permission

of the copyright owner.

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"Huiyuan is a long-established and successful juice brand in China and is highly complementary to theCoca-Cola China business,o1

- Muhtar Kent, President and CEO, The Coca.Cola Company

Coca-Cola (Coke) is the world's largest beverage company with more than 450 brands in its product portfolio.Globally, it is the No.1 provider of carbonated beverages, fruit juices and Ready-to-Drink (RTD) tea and coffee. In morethan 200 countries, consumers enjoy the products of Coke at a rate of 1.5 billion servings a day.2

China, the world's second largest beverage market, is the fourth largest market for Coke. In spite of a stringentregulatory framework in China, the company could successfully expand into the Chinese domestic markets. Thesuccess can also be attributed to consumer spending in China, which has been growing at an annual rate of over 20%and has contributed to the burgeoning domestic markets as well.3

Coke adopted a 'think global, act local' strategy, which emphasises on addressing the needs of consumers in thelocal markets around the world. In China, it has introduced non-carbonated soft drinks such as Guo Li Chen (MinuteMaid Pulpy) and Yuan Ye (Original Leaf Tea) to offer a wide range of beverage choices to the consumers. In the recentyears, the demand for fruit juices has increased in China. Consumers started shifting from carbonated drinks to freshfruit juices. This is evident from the success of Huiyuan Juice, one of the best-known juice brands in China.4 As such,Coke, in 2008, as a part of its strategy to further develop the beverage business and meet the growing demand forfresh fruit juices, has offered to buy Huiyuan Juice Ltd. However, with anti-monopoly law being imposed by the Chinesegovernment, analysts doubt if Coke would succeed in acquiring the Chinese beverage company. And, even if thecompany is acquired, sceptics inquire, whether it is worth a deal for Coke.

50ft Beverage Industry in China

The beverage industry in China was hardly recognised as an economic contributor since the formation of PeoplesRepublic of China (PRC) in 1949. As a result, the industry developed at a slow pace in the first three decades of theformative years of PRC. Between 1960s and 1970s, during the Cultural Revolution5 of China, the overall beveragemarket was fragmented. Enough facilities were not provided by the govemment to develop this sector. Though therewere almost 60 soft drink factories in Tianjin alone, many of them were very small and inefficient.6 Until 1978, anorange-flavoured carbonated beverage Juzi Qishui, sold in glass bottles, was the only soft drink beverage distributedacross the Chinese market.? At that time, consumption of beverage was considered a luxury.1 "The Coca-Cola company offers to buy Hu~an juice group', http://wwwthecoca-colacompanycom/presscenter/nr_20080903_tccc_hu~anjuice-9rp_tender_offerhtml,

September 3" 2008, Ibid., McDonald Joe, "China to review Coca Cola bid for juice maker', http://in.us.biz.yahoo.com/ap/080908/china_coca_cola_hu~uan.html,

4" 20085

polmcal and economic violence and chaos, which grew to include large sections of Chinese society and eventual~ brought the entire counby to the brink of chlil war6 "Economic Impact of Coca-Cola System on China", ,http://research.moore.sc.edu/Research/studles/China/china.full.augPDF August 20007 Ibid.

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Coca-Cola's Acquisition of China's Huiyuan Juice: A Juicy Deal?

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However, the open door policy introduced in 1979 accelerated growth in the erstwhile stagnated beverageindustry. With the entry of foreign MNCs like Coke and Pepsi in 1979 and 1981 respectively, the beverage industryin China experienced a sea change. In addition, most of the Chinese could afford soft drinks because of increasein their net income. Thus, the beverage industry developed rapidly due to foreign investment and was flooded withvarieties of beverages including sodas, fruit juices, natural protein drinks made from beans, dairy drinks, RTDbeverages, mineral water and drinks made with coconut milk and tropical fruits apart from alcoholic beverages.

In the 1980s, the foray of multinational beverage companies popularised the consumption of carbonateddrinks. As per the Chinese policies towards Foreign Direct Investment (FDI), the carbonated beverages wereadded under the category of 'controlled' in the state planning. This meant that the investment in the beverageindustry is subject to government approval on case-by-case basis. The Chinese government started encouragingFDls in the soft drink market. Since then, the soft drink market grew at an average pace of 21% annually. For overa decade, till 1990s, carbonated drinks maintained lead with a market share of 80%.8

Globalisation marked a new change in the beverage industry of China. According to statistics released at theNational Food Industry Work Conference, the production and consumption of beverages increased over the years. Inover a decade, the beverage industry expanded from a single carbonated drink to a variety of drinks that includedcarbonated drinks, bottled water and fruit juices. In the 1990s, considered as the second phase of growth in theChinese soft drink market, bottled water surpassed carbonated drinks with 40% market share. The demand for bottledwater can be attributed to the scarcity of pure drinking water and the belief of the Chinese that mineral water is goodfor health.

In 1999, considered as the third phase in the Chinese soft beverage industry, the RTD tea dominated the industrygrowth with market share of 12% and annual growth rate of 85%.9 Tea is the most consumed beverage by the peopleof Han, the majority race of China, as they believe that hot tea with meals will help in shedding saturated fats.

By the late 1990s, Chinese consumers were at cross roads, as many varieties of beverages flooded the Chinesemarkets. With the advent of MNCs, Chinese consumers started embracing new ideas and habits that were differentfrom their original culture. The Chinese consumption pattern was also driven by the development of media andtechnology. The Chinese consumer culture and economic system were considered to be different from that of thedeveloped countries. Gradually, the Chinese consumers started procuring new goods, which were once unavailable,unaffordable or forbidden.

With the increasing demand for soft beverages and changing tastes of the Chinese consumers, companies werecompelled to constantly innovate new flavours. This gave rise to intense competition among the domestic and foreignplayers. For instance, Pepsi and Coke entered into various beverage segments like non-carbonated drinks, RTD teaand juice drinks. The 'slick' advertising campaigns of the players helped in triggering the demand for soft drinks.

The onset of the 21st century heralded a new era of consumerism in China. Since 2002, the Chinese economygrew at a rapid pace and increased the standard of living of the people. This was evident from the gradual increase ofChina's GDP (Exhibit I). Rapid urbanisation spurt the spending capacity of the middle class. China's per capita grossnational income crossed $1,000 in 2002 and reached $2,010 in 2006.10 This resulted in the increase of disposableincome of the urban people. It is expected that by 2010, 40 million households will eam $6,000 a year equivalent to$24,000 in tenns of purchasing power parity.11 Growing economy, booming retail sector and increasing householdincome has brought a variety of goods at the consumers' disposal. The introduction of western meals through McDonald'sand Pizza Hut has popularised soft drinks especially among the urban youth.

. Jiahua Che, "And the Bottles Are Open: An Introduction to China's Soft Drink Marker, http://www.bm.usthk/-larryqiu/515-Softdrink.pdf, 2002-2003

. IbMj.10 "China prope~ gk>bal grl7Nth", http://www.chinadai~.comcn/bizchina/2007-10/12/contenL6168704.htrn, October 12" 200711 Yougang Chen ~d Jacques Penhirin, "Marketing to China's Consumers", 771e McKinsey Quarterly, December 2004

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Exhibit IChina's GDP Growth 2002-2006

Source: "China propels global growth', http:/!WNW.chinadaily.com.cn/bizchina/2007-10/12/content_6168704.htm, October 12" 2007

Soon, beverage companies brisked up their marketing activities. Competition intensified in the Chinese beveragemarket with both domestic as well as westem players like Coke (1979), Pepsi (1981), Groupe Danone (1987), Wahaha(1987), Tingyi (1992), Uni-President (1992) and Huiyuan Juice (1992) vying for a bigger market share. Foreign playersadopted advertising and promotional strategies to attract the customers. They launched ads in which foreign modelswere shown consuming their brands. On the contrary, Coke and Pepsi signed the renowned personalities of China toendorse their products. Thus, foreign players in the Chinese soft drink market played a major role in the developmentof the sector.

Although MNCs began investing in the beverage business, the FDI is scrutinised and subjected to governmentapproval. These companies found it difficult to enter the Chinese markets as the regulations imposed by the Chinesegovernment were unclear. The stringent laws and complex regulatory framework of China posed a hurdle for MNCs,which wished to enter the Chinese markets. Those companies, which were successful in entering the Mainland China,were allowed to operate only by means of joint ventures but were not allowed to operate on their own.

However, in the past 3 years since 2005, China has revised many of its policies towards foreign investment toconform to the WTO investment requirements. Even then, industrial planners are encouraging only those investments,which meet the goals of the country's economic development. Despite these challenges, investors are still eagerlyforaying into China allured by its huge consumer base. When compared to other industries like pharmacy, steel, etc.,which are totally under the state control, companies in the soft drink industry of China are less intervened by thegovernment and have a huge potential for growth.

Prior to 2005, the carbonated beverage market was in a state of saturation and big companies began expandinginto non-carbonated drink market, which was in a nascent stage in those days. China's total production of carbonatedbeverage in 2005 was 7.71 million tonnes, up by 20.82% compared to 2004. In 2005, the Chinese carbonated beverageindustry achieved sales revenue of RMB 31.9 billion, up by 21.63% compared to 2004. Though the growth rates ofboth production and sales in 2005 exceeded 20%, the profitability declined as compared to 2004.12 But among all thebeverages, the fruit juice and tea drinks had a strong growth rate during this period.

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12 'In 2005, The Chinese Carbonated Beverage IndustJy Achieved Sales Revenue of 319 Billion Yuans, up by 21.63% Compared to 2004', http://findarticlescom/p/articles/

mi_mOEIN/isJai_n16360916, May 15" 2006

4

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However, in the early 2000s, the beverage industry faced recession due to the outbreak of severe acuterespiratory syndrome that clearly reflected in the consumption pattern of soft drinks. The incident brought healthawareness among the Chinese. As a result, significant market changes occurred within the soft drink subcategories.The carbonates started losing their share to fruit juices and bottled waters. Fruit and vegetable juices slowly gainedprominence in the soft drink markets. The major players began shifting their emphasis from carbonated drinks tofruit juices and other non-carbonated sectors. This is when the soft drink markets of China entered the fourth phaseof development in which the fresh fruit juices became the catalyst for growth.

The fruit juice markets are divided into two categories: low-end and high-end category. The low-end categorycomprises of those juices with juice content less than 25%. Coke, Uni-President and Tingyi are the major players inthis category. The high-end category comprises of those juices with juice content of 25%-100%. Huiyuan, HaikoYeshu, Pepsi and Nongfu Orchard are the players in this category.

Thus, the development of carbonated drinks and bottled water gradually slowed down and the production of fruitjuice and tea drinks increased rapidly. All the famous companies launched new products. For example, Coke introducedTealux and Uni-President Enterprises launched English Black Tea. By 2006, the sales revenue of various beverageproducts was around RMB 47.2 billion (Exhibit II). As a result, within 5 years, by 2006, the soft drinks market hasincreased gradually, growing at an average annual rate of 14%.13

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Exhibit IISales Revenue of Various Beverages in China (in %)- 2006

5Tea Drinks

16 ' Carbonated Drinks

38

Juice Drinks25

Source: "China: Apple Crop, Juice Marker, http://www.juiceproducts.org/pdf/2008_am/China_Apple_Crop_report_april_2008.pdf, April 2008

The shift in consumer preferences also tilted the demand towards juice drinks and non-carbonated drinks.The players in the soft drink market diversified their product range from their core products and started producingRTD tea, bottled water, herbal drinks, juice and juice drinks. In 2007, Groupe Danone had the majority marketshare in the overall soft drinks segment followed by Coke (Exhibit III). But in the fresh juice segment, Coke stoodfirst with its Minute Maid orange juice followed by Uni-President's fresh orange juice and Tingyi's Daily C in the 25%juice content category (Exhibit IV). These are followed by Huiyuan, Haiko Yeshu Co. Ltd., Pepsi with its Dole andNongfu Orchard in the 25%-100% juice content category.

As of February 2008, there are about 6,000 fruit juice producers in China. According to the Natural Bureau ofStatistics of China, most of the fruit juice manufacturers are located in North and South China. For instance, SouthChina produces about 359,799.49 tonnes i.e., 22% of the total volume and the East China produces 476,562.06tonnes (29% of the total volume).14 The fruit juice market in China is mainly led by Taiwan-based enterprises like Uni-President Enterprise and Master Kong; famous Mainland China-based enterprises like Huiyuan and Wahaha andlarge MNCs like Coke and Pepsi.

13 'Soft drinks market in China', http://www.cbronline.corn/researchasp?guid=DBCM2104" 'China Fru~ Juice Beverage Industry Report. 2008', http://wwwresearchandmarkets.corn/research/f7b2a2/china_fruiUuice, February 2008

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Source: "Coke bets $2.4 billion on Chinese juice Market", The Wall Street Journal Asia, September 4" 2008, page 1

Exhibit IVMarket Share of Major Fruit Juice Players in China (in %), 2007

Source: 'China: Apple Crop, Juice Marker, htip://www.juiceproducls.org/pdf/2008_am/China_Apple_Crop_repOlt_april_2008.pdf, April 2008

The beverage market in China is very dynamic. Players find it tough to retain in the market if they do notchange their game plan accordingly. The Chinese usually prefer beverages, which are perceived to be healthyand those, which are considered to be better than the traditional carbonated soft drinks. As such, the carbonateswitnessed a very flat sales growth rate (Exhibit V). All these factors demanded the players to produce products,which appealed to the tastes and preferences of the local people. For instance, tea-based soft drinks with varyingflavours became successful as they suited the traditional tastes of the local Chinese.

Companies, which were successful in adapting themselves to the changing preferences by introducing newbrands and thereby penetrating the product into the market with good advertising concepts, were able to have afoothold in the market. Companies like Coke have adopted strategies that were in tandem with the changingmarket scenario. Thus, Coke became the market leader in the Chinese soft drink market despite fierce competition

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Exhibit VChinese Beverage Market, 2002-2006: Change in Volume by Category (%)

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Tea

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Milk

Carbonated Soft Drinks

Fruit and Vegetables Beverage~

Distilled Spirits

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Coffee

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Source: "2008 The Multiple Beverage Mal1letplace in China (Autumn 2008)", htip://W\'iw.beveragemal1leting.com/reportcatalog1h.html

among the players.

Coca-Cola in China: Its Market-entry, Growth and Expansion Strategies

"I'd rather die of thirst than drink Coca-Cola.

I'd rather starve to death than eat McDonald's."15

- Protester's Placard at Guangzhou Demonstration against the American Bombing of Belgrade, May 1999

Coke initially faced much resistance from the Chinese. Coke's presence in China dates back to the early1920s when it first entered the country. Initially, the company did not have its manufacturing base in China and hadto import bottles from its manufacturing facility in Philippines. In 1927, Coke had set up two bottling plants in China,one in Shanghai (largest Coke bottling plant outside the US) and the other in Tianjin. A third bottling plant wasstarted in the northeastern coastal city of Qingdao.

Post World War II, in 1949, the Chinese government persuaded all the foreign companies to quit the country. Allthe bottling units of Coke were nationalised and the company's permit to import the concentrate was seized. For morethan three decades, direct production by foreign beverage companies in China was ceased. During this period, thecountry's aversion towards foreign brands and MNCs was at its high. This was evident when in February 1951, aChinese official was sentenced to 5 years of imprisonment for having inclination towards imperialism and a favour forCoke.16

However, by 1979, with the liberalisation of economy, China opened doors to foreign investment and Coke was

'5 Hooper Beverley, "Globalisation and res~tance in post-Mac China: The case of fore~n consumer products", Asian Studies Review, December 2000, page 439'5 ibid, page 441'7 A Friendship Store ~ a state-run store in China, which inrnal~ sold ~stem, imported nems and Chinese art and crafts exclusive~ to tourists, foreigners, diplomats and

government officia~

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the first US company to re-enter China. After re-entry, Coke was allowed to sell its products - which were initially

imported from California and Hong Kong - to foreigners at special zones like hotels and friendship stores17. Cokefirst shipped 30,000 cases to important cities like Guangzhou, Shanghai and Beijing. Over a period of time, thedemand for the product increased. This pressed the need for Coke to bring the product into the market as quicklyas possible. In an unusual step, Coke sold the concentrate to the local bottling units but owned none of the units.Instead, it had setup operations in China in order to help the government in renovating the old bottling units andbuild new facilities, directly transferring technology and capital to China.

In the 1980s, Coke planned to start its production in China. To embark on the actual bottling and distributionsystem, it entered into joint ventures with the Chinese partners. In 1982, it built a plant in Beijing and handed it over tothe govemment in return for a permission to expand sales and distribution in China. Later, it also built a plant inGuangzhou. However, Coke handed over this plant to the Chinese government and received payment for the concentrate

supplied to the plants in Beijing and Guangzhou.

In 1984, Coke built a bottling unit in Xiamen, one of China's newly designated 'Special Economic Zones' (SEZs),which produced Fanta and Sprite in addition to Coke. The same year, Coke had also setup a bottling plant in Zhuhai.It was the company's first joint venture with the former ministry of Light Industry (now the State Light Industry Bureau

(SUB), under the State Economic and Trade Commission).18

In 1986, Coke had entered into a 'Contractual Joint Venture' (JV) with its Shanghai partner to build a plant. TheShanghai operations were a 50-50 JV. While Coke maintained 100% control over its beverage concentrate plant, theChinese had ownership in the bottling plant. As a result of the JV, the Chinese leaders approved the sale of beveragesto their consumers. In 1988, Coke opened another plant in Shanghai.19 However, all these bottling units required rawmaterials for production; a major challenge to Coke in the Mainland China.

To run its business in China, the company required drink ingredients, packaging materials, bottling-line equipment,construction services and business and financial services. Initially, Coke found it difficult to locate the raw materialsused in the preparation of the concentrate. In order to acquire supplies, it provided domestic companies with financialassistance and technical advice to develop equipment and improve quality standard. Coke had been spending about$600 million annually on raw materials and packaging supplies in China.20 As a result, 100% of the concentrate wasbeing produced locally and more than 95% of the raw materials used were being obtained from the local sources.

Coke realised that though it was easy to obtain supplies, there was a dearth of qualified personnel in China. So in1988, Coke along with the Chinese government setup a training centre at its Tianjin bottling facility. The centre had notonly trained Coke's personnel but also trained bottling plant managers and government officials in technical and

business skills.

Though Coke manufactured the concentrate, bottling of the end product proved to be a major task. Hence, Cokehas setup bottling facilities through JVs in China to bottle its products. Bottling of Coke products is majorly handled bytwo Hong Kong-based partners: Swire Pacific and the Kerry Group along with China National Cereals, Oils andFoodstuffs Import and Export Corporation (COFCO) and Coca-Cola Bottling Investment Group (BIG) (Exhibit VI). Thebottling system of Coke has spread across the Chinese landscape. However, Coke does not have any bottling unit in

'8 .Economic Impact of Coca-Cola System on China., opcit.'8 Ibid.20 'M!~ert Drake, .Coca-Cola in China: Quenchi~ the Thirst of a Billion., http://www.chinabusinessreviewcom/public/0107/we~erthtml, Juiy-August 20012' .Coca-Cola sees China as biggest market', http://economictimes.indiatimes.com/Coca_Cola_sees_China_as_biggest_market/rssarticleshow/2373558cms,

September 16" 2007

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Exhibit VICoca.Cola's Joint Venture Bottling Plants in China

Year of Start

1981 & 1999

1995

1987 & 1993

1983 & 1999

1996

1991

1989

1996

1996

1989

1994

1997

1986 & 1998

1995

1994

1990

1987

1993

1995

1984 & 1996

1995

1985

1997

Name of the Joint Venture Bottlin~ PlantLocation1. Beijing'2 Chengdu3 Dalian'4 Guangzhou'5 Harbin6 Haikou7 Hangzhou8 Hefei

9 Kunming10 Nanjing11 Nanning12 Qingdao13 Shanghai'14 Shenyang15 Taiyuan16 Tianjin17 Tianjin18 Wuhan19 Xian20 Xiamen'21 Zhengzhou22 Zhuhai

23 Dqngguan

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Coca-Cola Beverages (Beijing) Ltd.

Coca-Cola Beverages (Chengdu) Ltd.

Coca-Cola Beverages (Dalian) Ltd.

Taigu-Coca-Cola (Guangzhou) Ltd.

Coca-Cola Beverages (Harbin) Ltd.

Coca-Cola Beverages (Hainan) Ltd.

Zhongcui Food (Hangzhou) Ltd.

Taigu-Coca-Cola Beverages (Hefei) Ltd

Coca-Cola Beverages (Kunming) Ltd.

Zhongcui Food (Nanjing) Ltd.

Coca-Cola Beverages (Nanning) Ltd.

Coca-Cola Beverages (Qingdao) Ltd.

Shenmei Food (Shanghai) Ltd.

Coca-Cola Beverages (Shenyang) Ltd.

Coca-Cola Beverages (Taiyuan) Ltd.

Coca-Cola Beverages (Tianjin) Ltd.

Jinmei Beverages (Tianjin) Ltd.

Coca-Cola Beverages (Wuhan) Ltd.

Zhongcui Food (Xian) Ltd.

Taigu-Coca-Cola Beverages (Xiamen) Ltd.

Taigu-Coca-Cola Beverages (Zhengzhou) Ltd.

Coca-Cola Beverages (Zhuhai) Ltd.

Taigu Beverages (Dongguan) Ltd.

Source: Mok Vincent et al., 'An Internalization Approach to Joint Ventures: The Case of Coca-Cola in China", http://eprints.sussex.ac.uk/124/01/

Coca_Cola. pdt, Autumn 2002, page 33i:i:.,

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Source: "Economic Impact of Coca-Cola S~t~ (Xl China', http://research.mcxxe.sc.edulResearch/studies/China/china.full.aug.PDF, August 2000

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the Western interior provinces of China (Exhibit VII). As of September 2007, Coke has 37 bottling plants across thecountry.21 The Western provinces are still untapped because of the adverse climatic conditions and lack of necessaryresources for production.

Despite the absence of bottling units in the westem regions, the brands of Coke are available in the far-inlandmarkets due to the efforts of the distributors of Coke. Most of the Coke's products are sold through wholesale distributors.Some of the company's partners are large state-owned sugar, tobacco and wine enterprises. They have been distributingthe products of Coke since 1950s. Besides, Coke has its own way of supplying the products to the retailers. It employsdirect-to-retail distribution system. To manage its distribution and sales to retailers, it has set up sales centre in areaswith population of more than 1 million. These sales centres, which also serve as warehouses, are wholly owned by thebottlers of Coke. Personnel at the bottling facilities take care of the deliveries and marketing staff visit the retailers totake the local orders.

'Coca-Cola system', the value chain of Coke in China, which comprises of bottlers, suppliers and vendors made agreat impact on the country's economy. Coke employs more than 400,000 people across the country directly orindirectly in its production and distribution network. As the investment of Coke in China increased, the demand forpersonnel also increased. This created opportunity for many more people, thus further increasing Coke's impact onthe Chinese economic system. Since its re-entry into China, Coca-Cola system has invested more than $1.3 billion forestablishing its product and strengthening its distribution network.22 Coke's efforts to gain a foothold in China thusbecame fruitful and this was best illustrated through a study in which the symbol of Coke was recognised by almost98.4% of people, who once strongly opposed the product.23

Glocal Strategy of Coca.Cola in China

Coke's localisation of brands started in 1988. The Tianjin joint venture had helped Coke to produce non-carbonatedbeverage brands. Coke, apart from producing its main brands, launched customised flavours as per the local tastesunder the same facility for 6 years. Later, the plant was split into two separate entities, Tianjin Jin Mei produceddomestic brands and Tianjin Coca-Cola Bottling Company produced Coke brands.

By the mid-1990s, Coke sold more than 8 billion bottles and cans annually in China, despite protests faced byCoke initially.24 Even today, the company's presence is evident in most of the regions of China. The brand's logo isfound on the push carts in the commercial streets of major cities and also on the small shops in the neighbourhoods ofrural villages. Coke sells its internationally known brands Coke, Fanta and Sprite across the country. It also sells'Smart' under the soft drink category and 'Ice Dew' under the bottled water segment exclusively in China. By then,Coke started reaping profits, more than 10 years after its re-entry into China.

The success of Coke in China did not come so easily. The product faced few hiccups initially as its brand namewas misunderstood by the locals of China. When Coke entered the country, its employees tried to create a Chineseequivalent of its trademark. However, the Chinese version meant 'biting a wax tadpole'. As such, it was immediatelyrectified and the trademark was registered with Chinese characters that mean 'Delicious and refreshing'. The successof Coke in China can be attributed to its ability to adapt itself to the local tastes of Chinese people.

For achieving this, Coke underwent a strategic transformation. Rather than following a global strategy, it adopteda 'glocal' strategy. Coke introduced products as per the tastes and preferences of the Chinese.

In January 1996, the company launched its first domestic beverage brand Tian Yu Di (Heaven and Earth) thatappealed to people who prefer regional non-carbonated flavours. The products manufactured under this brand arefruit juice drinks (mango, Iychee and others) and RTD tea (oolong and jasmine).

Coke tried to appease the consumers of China by introducing products with a local tinge. So in 1997. Coke and its

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partner Tianjin Jin Mei introduced Xingmu (Smart), a carbonated soft drink line with bright colours and exoticflavours. Under this brand, many flavours like green apple, watermelon, coconut, peach and orange wereintroduced, which proved to be extremely successful. Coke has also introduced non-carbonated beverages suchas Guo Li Chen (Minute Maid Pulpy), a variation of its Minute Maid Orange juice, 000, a non-carbonated fruitbeverage developed especially for children and Yuan Ye (Orange Leaf Tea). Minute Maid Pulpy, launched inChina in 2004 (that contains less than 24% real juice), is the top seller across all the regions of the country in thelow-end juice drink category.

Coke has adopted its localisation strategy not only in its products but also in its marketing, advertising and public

Exhibit VIIIChronicle of Coca-Cola in Relevance to Chinese History

Year Events

1883 Coca-Cola company was launched. Mao Zedong was born

1923 Robert W. Woodruff became the chairman of Coca-Cola in 1923

1925 Sun Zhongshan, a Chinese revolutionary leader passed away

1927 Coca-Cola appointed two Chinese bottlers in Tianjin and Shanghai

1937 Japan began to invade China

1948 China became the first overseas market where Coca-Cola's annual selling exceeded 100 millionboxes

1949 People's Republic of China was founded

1978 On the same day when China and the US announced to establish diplomatic relations, Coca-Colaannounced to be the first international consumer goods company returning to China

1997 M. Douglas Ivester became the CEO of Coca-Cola. China resumed sovereignty over Hong Kong

1999' SOUl anniversary of People's Republic of China. China resumed sovereignty over Macau

Source: Van 1ian, 'Communicating with local publics: a case study of Coca-Cola's Chinese web site", Colporate Communications: An International

Journal, Volume 11, No.1. 2006, pages 16-17

relations. For example, Sprite is considered as a local beverage by many Chinese, as it was endorsed by FuMingxia, a Chinese world-class female diver.25 It also launched its website in the Chinese language in order tocommunicate with the local Chinese. Coke has showed its respect for China in many other ways. It paralleled thehistory of Coke with a focus on the major political events in the modem Chinese History through a chart in the Chinese

language (Exhibit VIII).

Competitors of Coke in China

" Van Tian, 'Communicating with local publics a case study of Coca-Cola's Chinese web site', Corporate Communications: An International Journal, Volume 11, No.1,

2006, pages 16-17

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Coke's early entry into China has helped it to have a competitive advantage in terms of extensive manufacturingand distribution network. Coke is at present competing with Pepsi, Uni-President Enterprises Corp., Wahaha, Tingyiand Groupe Danone in the soft drink markets of China.

Pepsi has been one of the major contenders in the carbonated segment since its entry into China in 1981. Coke

Exhibit XPer Capita Consumption of Coke's Beverage Products in Three Decades -1987, 1997 and 2007

Source: 'Per Capita Consumption', http:/iwWN.theroca-Colacompany.com/ourcompany/ar/percapitaoonsumption-PBdfic.html.2007

has been fiercely battling with Pepsi to lure the customers of China. Coke always had been ahead of Pepsi in termsof market share in China (Exhibit IX).

By the late 2000s, Coke was available to 80% of the Chinese population.2e This was driven by the increase inthe per capita consumption of Coke over a period of time (Exhibit X). In 2006, Coke sold 4.33 billion litres ofcarbonated drinks in China, a sales-volume hike of 70% over its results in 2000 and Pepsi sold 2.93 billion litres,32% less than Coke but 93% better than it did in 2000.27

" 'Economic Impact of Coca-Cola System on China', op.cit27 Keittl Fijz-Gerald, 'Pepsi 'Goes Red' in China', http:lflNlWmoneymorni~.com/2007/09/28/pepsi-9oes-red-in-china/, September 2~ 2007

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Though Coke is leading in terms of market share and sales, it is still trailing behind Pepsi in terms of adaptingitself to the changing preferences of consumers. Pepsi has been quick to react to the changing trends and changeits game plan accordingly. Pepsi offers four main product lines in China: Pepsi-Cola soft drinks, Gatorade sportsbeverages, Frito-Lay snacks, and Quaker foods. Pepsi has introduced Tropicana and Dole in the fruit and fruitjuice category. To diversify its portfolio and capture market share in the food industry, Pepsi has been investingheavily in the local snack food market over the past several years. Pepsi offers many brands in the salted snackssegment of China with various regional flavours such as Beijing Duck and Spicy Crab to satisfy the tastes andpreferences of the local customers.

Pepsi also tried rigorously to lure the consumers during the Olympics season. Though Coke was the majorsponsor of 2008 Beijing Olympics, Pepsi was neck to neck with Coke in terms of marketing of its products. Coke

Exhibit XIMajor Competitors of Coke

Competitors of Coke Major Sectors of Operation

Pepsi

Un i-President Enterprises Corp.

Wahaha

Tingyi

Groupe Danone

Competes with Coke in the carbonated sector. It has introduced Tropicanaand Dole to compete with Coke in the low-end fruit juice market.

It is the leading beverage and instant noodles manufacturer incorporated in

China in 1992. It was the sole official noodles sponsorer of Beijing Olympics.Coke has to compete with Uni-President in the RTD tea and fruit juice segment,as the latter is one of the major players in those sectors.

It is the major player in the bottled water segment. It has launched FutureCola in 1998 to compete with Coke in the countryside with price less than

that of Coke to penetrate into the rural areas.

Tingyi is China's top instant noodle maker. It is also the largest bottled tea-maker, with its Master Kong brand accounting to 50% of the country's market

share. It is the second largest bottled-water maker accounting to 12.4% ofthe market share. Coke faces tough competition from Tingyi in RTD tea and

bottled water segments.

Groupe Danone entered China in 1987. The main business of Danone inChina consists of yogurt, biscuits and beverages. It is the largest player inthe soft drink markets of China and also holds 23% stake in Huiyuan, a leadingfruit juice producer in China. Coke competes with Danone in the fruit juice

segment.

Compiled by the author

went on a 4-month tour with the Olympic torch through more than 100 cities as a major sponsor of the event.This helped Coke to introduce the brand to new customers in the regions where it had no presence. Pepsi inresponse to the sponsorship of Coke introduced red cans in place of its original blue ones to support the countryand also to lure those consumers who had the disposable income but had no brand knowledge.

Competitors of Coke in China operate with a well-diversified product range from RTD tea to noodles (ExhibitXI). Major players in the soft drink industry of China are quickly changing their strategies to cater to the increasinglyhealth conscious Chinese consumers.

Coke's carbonated beverages are in the declining stage of product life cycle. Carbonated drinks are becoming

13

309-011-1


less attractive in the recent times. Besides, the rising health consciousness of the Chinese consumers has led todrastic changes in the soft drinks purchasing pattems. In this changing scenario, the need for Coke to diversify itsproduct range and retain its position in terms of market share is very much evident.

Fruit and vegetable juices are considered to be growth engines in the soft drink market as the consumers areshifting from carbonated drinks to non-carbonated drinks. Coke has already started to take away the fizz out of itsdrinks and started shifting towards the production of healthier beverages. In its effort to tap the growing affluence of theChinese consumers and also meet the increasing demand for fresh fruit juices, Coke has offered to buy Huiyuan JuiceLtd., one of the major players in the fruit juice markets of China.

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Coca.Cola's Acquisition of Huiyuan

Huiyuan Juice Group of China

Beijing Huiyuan Beverage and Food Group Co., Ltd. was founded in 1992 (Annexure I). Huiyuan Juice Group(Huiyuan) is China's biggest fresh fruit juice maker, which competes mostly in the high-end juice market with morethan 40% market share.28 It is engaged in producing and marketing fruit and vegetable juice drinks. It offers a widerange of beverages such as 100% juice, nectars, juice drinks, kids' juice drinks and mixed fruit and vegetable juices. Itholds the No.1 position in China in 100% juices and in nectars with juice content ranging between 25%-99%. It hasbuilt over 30 plants across the country, linking 4 million square metres of raw material bases and orchards for fruits.Huiyuan has developed and produced more than 500 kinds of products since its inception. The market share ofHuiyuan in fruit juice market is 46% and that in nectars is 39.8%.29

Huiyuan exports its juice concentrates, purees and juice products to more than 30 countries and regions. Exportbusiness of Huiyuan has been growing at a rapid pace. The products - mainly 100% apple juice and kids juice drinks- are exported to the foreign markets of US, Australia and New Zealand. The products exported to more than 20European and American countries have reached about 150,000 tonnes with a profit of $135 million in the past 15

years.30In order to further expand its business, Huiyuan went for an IPO on February 23rd 2007. Thereby, the China

Huiyuan Juice Group Ltd. was listed on the main board of the Hong Kong Stock Exchange with an increase of stockprice by 66?/o and 937 times over subscription on the IPO date. The major stakeholders of the company are GroupeDanone with 23% share and Warburg Pincus, the private equity group of US with 6.8% share. The increasing businessof Huiyuan had driven Coke to make a premium offer to acquire Huiyuan. This offer is indicative of Coke's eagernessto tap more lucrative niches.

Coke's Offer to Huiyuan and the Impact of Anti-Monopoly Law of China on the Deal

Coke had offered HK$12.20 ($1.6) a share in cash to Huiyuan, which was nearly three times Huiyuan's stock priceof HK$4.14 ($0.533), to acquire all the issued shares of Huiyuan. Upon the completion of the deal, Huiyuan Juicewould be de-listed from the Hong Kong Stock Exchange. Coke has received approval for 66% of Huiyuan's sharesfrom Danone, Warburg Pincus and Zhu Xinli, Huiyuan's chairman.31 On September 23rd 2008, Coke has filed itsapplication with Chinese antitrust officials to acquire China Huiyuan Juice Group Ltd. The acquisition would help Coketo diversify its drinks portfolio and expand beyond the carbonated drinks for which the market in China is slowingdown. Euromonitor'2 forecasts that the retail value of juice sales in China will grow about 94% through 2012, compared

28 Feng Sue and McKay Betsy, 'Coke deal to test China's new antitrust law', The Wall Street Journal Asia, September 5" 2008, page 4

29 'Introduction of Huiyuan Group', http://www.hu~uan.com.cn/en/about/develop.htrni

30 IbK1.

31 'Coke pulls-off biggest ever acquisition of Chinese firm with $24-billion buy of Huiyuan Juice', http://domain-b.com/companies/companies_c/coca-cola/

20080904_hu~uanjuice.htrnl, September 4" 200832 Euromonitor International ~ a provider of business intelligence on industries, countries and consumelS. It has more than 30 vealS of experience in publishing market reports,

business reference books, online infom1ation systems and bespoke consulting projects.33 'Coke deal to test China's new antitrust law', opcil

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with the growth of about 30% for sodas. If the deal is consummated, Coke would control 37% of the Chinese juicemarket.33

But, on August 1st 2008, China imposed the anti-monopoly law. According to the new law, the acquisition of theChinese companies by foreign MNCs will be subject to stringent checks so as to protect the country's economicsecurity. As foreign companies have begun to acquire major state-owned enterprises and companies with famousbrands, concerns about the national security started rising. The main objective of the antitrust law is to prevent foreigncompanies from becoming monopolistic. Foreign companies should apply for approval to the Ministry of Commerce(MoC), if the acquisition of the domestic company has an affect on the national economic security, if the purchasetakes place in the key sectors of China or results in the transfer of operating rights of domestic brands.

The deal being the first of its kind became challenging due to the newly imposed anti-monopoly law. Accordingto the law, any deal involving companies with a global tumover of $1.5 billion (RMB 10 billion) and where at leasttwo of the parties each has a tumover of $60 million (RMB 400 million) should file for approval.34 Huiyuan Group'ssales volume in 2007 totalled to just over RMB 3 billion, whereas China's market for fruit and vegetable beveragesis worth RMB 40 billion.35

Coke has 22% market share of overall juice market in China and Huiyuan has 15% market share, much lessthan 50% of the whole juice market. Though Huiyuan is a market leader in the 100% juice and nectars, thesesectors are relatively small when compared to the overall juice market.36

Huiyuan being a well-known brand, the government officials may face protests from the people of China tokeep the brand in the local hands. In an online poll conducted by a Chinese website Sina.com, 82% of more than40,000 respondents opposed the purchase of Huiyuan by Coke.37

Synergies of the Deal

Coke expects to benefit from the deal as Huiyuan has a strong raw material base. It also has 1,800 distributorsand 200 sales offices. It has enough potential to promote the sales of its 200 juice products under its core brand.38Major challenges in the Chinese market are procuring raw materials and effective product distribution channels.Coke's acquisition of Huiyuan would benefit Coke not just in terms of strong sales of popular brand in a fast growingmarket put also in terms of Huiyuan's manufacturing facilities. It would enable Coke to acquire control over thedistribution network of Huiyuan and also secure raw material supplies that are more easily available in the MainlandChina.

Over the past 3 years since 2005, Huiyuan's compound annual growth rate has been 31%. The overall juice

34 Waldmeir Patti and Tucker Sudeep, .Asian antitrust laws t!lreaten to tie up global deals, lawyers warn', Financia/1imes, July 28" 2008, page 1" 'BOABC Comments on Coca-Cola's Acquisition of Hu~uan from a China Viewpoinr, http//www.prnewswire.com/cgi-bin/stories.pl?ACCT=109&STORY=lwww/storyl

Q9.15-200810004884760&EDATE, September 15'" 2008" Luo Kevin, .Company Note', ,http://wwwgija.com.hk/gija_Report/Report/pdf/1886-10092008-KL.pdf September 10" 200837 .Coke deal to test China's new antitrust law', opcit." .China Business', http://wwwatimescom/atimes/China_Business/JI09Cb01.htrnl, September 9" 200839 Mitchell Dan, .Coke's China Play Expensive, Carries Risks', http://industry.bnet.com/food/1000176/cokes-china-play-expenswe-carries-risks/, September 3" 2008" .China inslsts on princip~ of mmet economy on Hu~uan takeover', http://engiish.eviewweek.com/China-insis!s-<)n-principle-of-market-economy-on-Hu~uan-takeover.shtrnl,

September 10" 200841 "Coca-Cola puts new takeover law to tesr, http//en.ec.com.cn/article/entrade/enpromotion/200809/646784_1.htrnl, September 5" 200842 "Hu~uan's sale to Coca-Cola right move", http://ence.cn/Business/Enterprise/200809/0alt20080908_16739790.shtrnl, September 8" 2008

309-011-1


Exhibit-XIIComparison of Huiyuan's 2008 and 2007 Results

RMB (in million) 2008

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Adjusted profit attributable to equity holders'

Basic Earnings per share (RMB Cents)

. Exduding one-off interest incx:xne frOOlIPO share subscription, interest expenses and dlange of fair value on Convertible bonds, exdlange gains

frOOl convertible bonds and amortization of employee options

Source: Luo Kevin, "Company Note", htlp://www.glja.com.hk/glja_ReooI1/RepOl1/pdf/1886-10092008-KL.pdf, September 10" 2008

market of China has been growing at an annual rate of 12%.39 As per the statistics, Coke, on acquisition ofHuiyuan, would have the leading position in the China's competitive beverage market. It would overtake GroupeDanone, which had a 16.3% market share in 2007.40 Huiyuan also exports to more than 30 countries includingUS. The deal would help Coke to dominate the global market for non-carbonated drinks in the wake of the decliningdemand for carbonated drinks.

Huiyuan agreed to Coke's proposal as it had met a growth bottleneck due to lack of financial support frombanks and the govemment.41 Also, the revenues of Huiyuan saw a downtum in 2008 (Exhibit XII). After acquisition,Coke would retain the Huiyuan brand and would further develop the brand. According to Zhu Xinli, president ofHuiyuan Juice, "The cooperation with Coca-Cola will help the Chinese firm to enter Coca-Cola's global procurementsystem and will benefit Huiyuan, its employees and consumers."42

Challenges Ahead

The major challenge ahead for the Coke-Huiyuan deal is the probability of approval. The prospects of approvalare still unclear. The deal is yet to be approved by the antitrust officials of China. The deal would face two mainchallenges: (1) the government may not approve the deal and (2) the acquisition may take a long time to materialise.To face the first challenge, Coke has to re-strategise and adopt new strategies to capture the affluent market of theChinese beverage industry. As far as the second challenge is concerned, Huiyuan might not be able to enjoy thefruits of acquisition immediately. The success of the deal would pose a challenge for the domestic companies andthe whole strategic situation of the whole juice industry might also change.

The deal, if gets materialised after undergoing the stringent rules and regulations of the anti-monopoly law ofChina, would strengthen Coke's stronghold in one of the world's fastest growing beverage markets. According toMuhtar Kent, president and CEO of The Coca-Cola Company, "This acquisition will deliver value to our shareholdersand provide a unique opportunity to strengthen our business in China, especially since the juice segment is so dynamicand fast growing in China. It is also further evidence of our deep commitment to China and to providing Chineseconsumers with the beverage choices that meet their needs."43

.. 'The ~ Company offers to buy Huiyuan juice group', op.c~

309-011-1


Annexure IHistory of Huiyuan Group

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In 1992, Zhu Xin Li, founder of Huiyuan Group, established Shandong Zibo Huiyuan Company.

In 1993, Huiyuan introduced a fruit processing line from Germany, put it into operation and exported apple

concentrate for the first time.

In 1994, Huiyuan Group moved its headquarters to Beijing, starting to launch domestic juice market and built new

plant.

In 1995, Huiyuan Group launched its first product - 250m1100% Juice, tuming out to be a great success.

In 1996, Huiyuan 1L Family Size Series Juice was launched.

In 1997, Huiyuan Group advertised in CCTV prime-time programme, tuming Huiyuan Juice into a well-known brand in

China.

In 1998, Huiyuan Group entered into a stage of fast expansion and started to build plants all over the country.

In 1999, Huiyuan Group ranked one of the 'Top Ten Enterprises in China's Beverage Industry'.

In 2000, with the eight sales regions being set up, Huiyuan successfully established a powerful sales network covering

the whole country.

In 2001, Huiyuan became the first company to introduce the most advanced Aseptic Cold Filling PET Line of the world

level and took the lead in using PET aseptic cold filling technology in China's juice industry.

In 2002, Huiyuan was granted the honour of 'Leading Enterprise in Agro-indusmalisation in China' and Huiyuan Brandwon the title of 'China Famous Brand'.

In 2003, Huiyuan was the first company to win the 'Safe Beverage Certification' in China's beverage industry.

Cooperating with American In-Zone Company, Huiyuan achieved the exclusive license of the 'Belly Washer Brand' kidsdrinks in China.

In 2004, Huiyuan products were honoured as 'China Branded Products'.

In 2005, 'China Huiyuan' was registered overseas and Huiyuan Group obtains the qualification of 'Exemption from

Products Quality Inspection' by the State.

In 2006, Huiyuan Group established strategic cooperation with Danone Group of France, Warburg Pincus from the US,

Netherlands Development Finance Company (FMO) from Netherlands and Development Partners from Hong Kong.Huiyuan won the honour of 'National Model Unit for Industrial Tourism'.

In 2007, China Huiyuan Juice Group Limited was successfully listed on the main Board of the Hong Kong Stock

Exchange.

Source: "Our HistOly", hltp:/f.'I\A,w.huiyuan.com.cn/en/about/develop.hbnl

I

1 _

Coca-Cola - About Us

~ __ H_om_e '~lC=VOur HealthrC::~C••••.•

I, I. About Us

CompanyHistory

CompanyStructure

Mission,Visionand Values

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What We Doll Let's Get TOge~

These are the declarations of our overall mission and goals, and the values that we areguided by as a company and as individuals.

The Coca-Cola Company Mission

Our Mission is:

• To refresh the world - in mind, body and spirit• To inspire moments of optimism - through our brands and actions, and• To create value and make a difference - everywhere we engage

The Coca-Cola Company Vision

To achieve our Mission, we have developed a set of goals, which we will work with ourbottlers to deliver:

Profit: Maximising return to shareowners while being mindful of our overall responsibilities.People: Being a great place to work where people are inspired to be the best they can be.Portfolio: Bringing to the world a portfolio of beverage brands that anticipate and satisfypeople's desires and needs.Partners: Nurturing a winning network of partners and building mutual loyalty.Planet: Being a responsible global citizen that makes a difference.

The Coca-Cola Company Values

Our shared values that we are guided by are:

I

IIIL .,------------L!2009The Coca-<:OlaCompany,all rights reserved.

• Leadership• Passion• Integrity• Accountability• Collaboration• Innovation• Quality

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28/11/2009

Additional information regarding Coco Cola

News ReleaseACQUISITION OF HUIYUAN JUICE GROUP IN CHINA NOT TO PROCEED

HONG KONG, March 18, 2009 - As a result of the decision of the China Ministry of Commerce (MOC) to declineapproval for the proposed purchase of the Huiyuan Juice business, The Coca-Cola Company said today that it will not

be able to proceed with the acquisition.

'We are disappointed, but we also respect the MOC's decision," said Mr. Muhtar Kent, President and Chief Executive

Officer of The Coca-Cola Company.

'We put a tremendous effort into providing all the relevant materials to the MOC to ensure that they had all theinformation available and understood the transaction," Mr. Kent said. 'We were looking forward to working with theexcellent Huiyuan team to stimulate new growth for the Huiyuan brand."

'We will now focus all of our energies and expertise on growing our existing brands and continuing to innovate with newbrands, including in the juice segment. Our recently opened USD 90 million Global Technology and Innovation Centre inShanghai will playa key role in bringing this innovation to life," Mr. Kent said. "We hold a long-term view of the Chinamarket, and are committed to ensuring that Chinese consumers have a wide variety of top quality beverage options

available to them."

Coca-Cola recently announced its commitment to invest USD 2 billion in China over the next three years in new plantand distribution infrastructure, sales and marketing, and R&D. This is in addition to the USD 1.6 billion already invested

in China since the Company's return in 1979.

'We will also continue our community investments in China. Whether it is working with Project Hope to help buildschools and libraries across China, or working with educators to construct technology and multimedia centers forChinese schools, or partnering with Government authorities to promote environmental education, or the World WildlifeFund to help conserve and protect China's precious water resources - we are firmly committed to a sustainable and

prosperous future for all of China."

http://www.thecoca-colacompany.com/presscenter/nr_20090318_huiyanJuice.html

By VALERIE BAUERLEIN and GORDON FAIRCLOUGH

China rejected a $2.4 billion bid by Coca-Cola Co. for one of the country's largest Juice makel'$ - dealing a blow to Chief ExecutiveMuhtar Kenrs campaign to accelerate his company's push beyond soda in a critical market.

The Commerce Ministry's finding, that the purchase could crowd out smaller companies and raise consumer prices, also risks having achilling effect on foreigners looking to make other deals in China, lawyers and Investment bankers said.

Coke's attempt to buy China Huiyuan Juice Group Ltd. was part of Mr. Kenrs broader strategy to push more aggressively into the fruit-juice business globally. Coke had been trying to parlay its high-profile sponsorship of the Beijing Olympics last summer Into greatercommercial success as U.S. sales slow. China is Coke's fourth-largest market by volume. after the U.S., Mexico, and Brazil.

Mr. Kent, who became CEO in July, had a lot riding on the deal and now must find another way to grab a larger share of the fast-growing Chinese juice business. Juice sales in China rose 89% by volume from 2004 through last year, while soda sales rose 42%,according to research firm Euromonltor International.

Associated Press

Wednesday's decision deprives Coke of access to Huiyuan's 31 plants, which would have added considerably to the AtIanta-basedcompany's production and dlstrlbutlon might In the country. Coke also prized Hulyuan's upscale brand and saw opportunity forexpansion. Huiyuan has long been a leading player In China's fruit and vegetable juice market.

But after lengthy negotiations. China Insisted that the Hulyuan name Itself should remain In Chinese hands, even If other assets weresold - a move that made it Impossible for Coke to justify the $2.4 billion price.

http://www.thecoca-colacompany.com/presscenter/nr_20090318_huiyanJuice.html

'V'Ie are disappointed," Mr. Kent said In a prepared statement, adding that the company respects Beijing's decision. He declinedrequests for an interview, and the company declined to comment beyond the statement.

"It puts a crimp in their ability to grow China meaningfully in a quick way," said Eric Schoensteln. co-portfolio manager of a fund atJensen Investment Management In Lake Oswego, Ore., that owns about 1.3 million Coke shares valued at about $54 million.

But some investors were relieved that the offer didn't go through. Coke had said the acquisition would dilute earnings by three cents tofour cents a share for the first full year after completion of the deal.

Coke In September suspended share buybacks in anticipation of the acquisition. And a weakening in Huiyuan's sales since Septemberhad made the dears premium particularly rich. Huiyuan's market share in China slipped to 8.5% last year from 10.3% a year earlier.

http://online.wsj.com/article/SB123735859467667801.html#

Wall Street Journal

Coca-Cola, juice maker Huiyuan both "respect" Chinese gov't rejection of purchase bid

BEllING, March 18 (Xinhua) -- Coca-Cola Company and Huiyuan Juice Group saidWednesday that they respect the decision of the Ministry of Commerce (MOC) to rejectCoca-Cola's 2.3 billion U.S. dollar bid for China's largest juice maker.

Their statements came just hours after the MOC decision was announced,

"Huiyuan respects the decision made by the MOC. The group's production is normal forthe time being," the group said in a statement to Xinhua. "Huiyuan will continue providinghigh-quality, safe and nutritious products to consumers. "

The Coca-Cola Company said in a statement to media that, "We are disappointed, but wealso respect the MOC's decision. "

Nevertheless, Coca-Cola stressed confidence in its development on the Chinese market.

"We hold a long-term view of the China market, and are committed to ensuring thatChinese consumers have a wide variety of top quality beverage options available to them, "said Muhtar Kent, President and Chief Executive Officer of the Coca-Cola Company, in thestatement.

Huiyuan's shares on the Hong Kong stock market were down nearly 20 percent beforebeing suspended Wednesday.

According a joint announcement made by the Coca-Cola Company and Huiyuan at theHong Kong stock exchanges, an application has been made to require the resumption oftrading in the Huiyuan Shares with effect from 9:30 a.m. on Thursday.

China's Ministry of Commerce (MOC) announced Wednesday morning that Coca-Cola'sbid to acquire China Huiyuan Juice Group failed to meet the country's anti-monopoly law.

The MOC said on its Web site that the investigation, which "exactly followed relative lawsand regulations," found the transaction may disturb market competition.

"If the acquisition ofHuiyuan went into effect, Coca-Cola was very likely to take adominating position in the domestic market and the consumers may have to accept the highprice fixed by the company as they don't have more choices," the statement of the MOC said.

Kent claimed that Coca-Cola had "put a tremendous effort" to help MOC have a clearunderstanding of the acquisition during the application process, and that the company hadbeen hoping to stimulate growth for the Huiyuan brand.

Coca-Cola applied anti-trust investigation to the MOC in September. The MOC officiallylaunched the investigation on Nov. 11 to determine whether the acquisition ofHuiyuan wouldharm other rivals and consumers rights or hamper technological development.

The acquisition ofHuiyuan was the first major deal to test China's new anti-monopoly law,which took effect on Aug. 1, 2008.

The MOC's statement said it has communicated with Coca-Cola several times andsuggested it to make changes in the acquisition document so that it would not disturb marketcompetition. Coca Cola has not yet satisfied request.

Experts said the decision to reject Coca Cola's acquisition will cost the world's largest softdrink maker the opportunity to increase its shares of China's juice market by more than 20percent.

The company saw its business in china grew 19 percent in 2008 and has listed China as itsthird largest market in the world.

"We will now focus all of our energies and expertise on growing our existing brands andcontinuing to innovate with new brands, including in the juice segment," Kent said.

Zhang Junsheng, an economics professor at the University ofIntemational Business andEconomics said this decision aims to maintain competition and avoid potential hostilecompetition.

"This move will help both domestic and overseas juice makers to compete fairly, and isgood for the development of the companies in the long run," he said.

Coca-Cola offered to buy Huiyuan, the nation's largest juice maker, for 17.92 billion KongKong dollars (2.3 billion U.S. dollars) in cash on Sept. 3.

http://news.xlnhuanet.com/engllsh/2009-03/19/content_l1032929.htm

http://news.xlnhuanet.com/engllsh/2009-03/19/content_l1032929.htm

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UNAUDITED CONDENSED CONSOLIDATED INTERIM STATEMENT OF COMPREHENSIVE INCOME

UnauditedSix months ended 30 June

2009 2008Note RMB’000 RMB’000

Revenue 5 879,691 1,294,440Cost of sales 7 (659,028) (887,319)

Gross profi t 220,663 407,121Other income — net 6 1,406 35,440Other gains 106 971Selling and marketing expenses 7 (319,781) (272,356)Administrative expenses 7 (152,556) (79,036)Finance income — net 8 332,386 289,389

Profi t before income tax 82,224 381,529Income tax expense 9 (15,480) (14,188)

Profi t for the period 66,744 367,341

Total comprehensive income for the period 66,744 367,341

Profi t attributable to equity holders of the Company 66,744 367,341

Total comprehensive income attributable to equity holders of the Company 66,744 367,341

RMB Cents RMB Centsper share per share

(Losses)/earnings per share for profi t attributable to the equity holders of the Company 10 — basic 4.5 25.0 — diluted (16.9) 7.0

Dividends 11 — —

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UNAUDITED CONDENSED CONSOLIDATED INTERIM BALANCE SHEET

Unaudited Audited30 June 2009 31 December 2008

Note RMB’000 RMB’000

ASSETSNon-current assetsProperty, plant and equipment 3,253,674 3,102,455Intangible assets 467,591 317,262Land use rights 426,072 429,080Long-term prepayment — 148,583Deferred income tax assets 23,365 31,070Long-term receivable 11,860 —

Total non-current assets 4,182,562 4,028,450

Current assetsInventories 853,273 760,560Trade and other receivables 12 516,311 643,666Derivative fi nancial instruments — 882Other loans and receivables 60,000 356,786Restricted cash 37,051 94,355Cash and cash equivalents 968,085 1,306,621

Total current assets 2,434,720 3,162,870

Total assets 6,617,282 7,191,320

EQUITYCapital and reserves attributable to the Company’s equity holdersShare capital 114 114Share premium 3,716,982 3,716,982Other reserves 144,175 139,298Retained earnings — Proposed dividend — 22,235 — Others 776,095 709,351

Total equity 4,637,366 4,587,980

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Unaudited Audited30 June 2009 31 December 2008

Note RMB’000 RMB’000

LIABILITIESNon-current liabilitiesBorrowings — 478,266Deferred government grants 64,298 65,009Long-term payable for land use rights 7,811 7,751Long-term payable for license fee 2,730 4,095Convertible bonds 14 714,128 —

Total non-current liabilities 788,967 555,121

Current liabilitiesTrade and other payables 13 499,505 472,313Taxation payable 7,430 27,305Deferred revenue 30,448 18,970Convertible bonds 14 — 1,069,396Borrowings 653,566 460,235

Total current liabilities 1,190,949 2,048,219

Total liabilities 1,979,916 2,603,340

Total equity and liabilities 6,617,282 7,191,320

Net current assets 1,243,771 1,114,651

Total assets less current liabilities 5,426,333 5,143,101

strategic financial management - coca cola case study

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