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

Case study Reference no 309-011-1

of China's

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This case was written by Swapna Pragada,under the direction of Pasupuleti Girija, ICFAI ~usinessSchool CaseDevelopment Centre. It is intended to be used as the basisfor classdiscussion rather than to illustrate either effective or ineffective handling of a management situation. The casewas compiled from published sources.
@ 2009, ICFA! Business SchoolCase Development Centre.

No part of this publication may be copied, stored, transmitted, reproduced or distributed in any form or medium whatsoever without the permission

of the copyrightowner.

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"Huiyuan a long-established successful is and juice brandin Chinaand is highlycomplementary the to Coca-Cola Chinabusiness,o1 - Muhtar Kent,President CEO, Coca.Cola and The Company

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Coca-Cola (Coke)is the world'slargestbeverage company with morethan 450 brandsin its productportfolio. Globally, is the No.1provider carbonated it of beverages, juicesandReady-to-Drink fruit (RTD) andcoffee.In more tea than 200countries, consumers enjoythe products Cokeat a rateof 1.5billionservings day.2 of a China,the world'ssecondlargestbeverage market,is the fourthlargestmarketfor Coke.In spiteof a stringent regulatory frameworkin China,the companycould successfully expandinto the Chinesedomesticmarkets.The success alsobe attributed consumer can to spending China, in whichhasbeengrowing an annualrateof over20% at and hascontributed the burgeoning to domestic markets well.3 as Cokeadopted 'thinkglobal,act local'strategy, a whichemphasises addressing needsof consumers the on the in localmarketsaroundthe world.In China,it has introduced non-carbonated drinkssuchas GuoLi Chen(Minute soft MaidPulpy) and YuanYe(Original LeafTea)to offera widerangeof beverage choices theconsumers. the recent to In years,the demand fruitjuiceshasincreased China.Consumers for in startedshifting fromcarbonated drinksto fresh fruitjuices.Thisis evident fromthe success Huiyuan of Juice,oneof the best-known juicebrandsin China.4 such, As Coke,in 2008,as a part of its strategy furtherdevelopthe beverage to business meetthe growing and demandfor freshfruitjuices,hasoffered buyHuiyuan to JuiceLtd.However, anti-monopoly beingimposed the Chinese with law by government, analystsdoubt if Cokewouldsucceedin acquiring Chinesebeverage the company. And, even if the company acquired, is sceptics inquire, whetherit is wortha dealfor Coke.

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50ft BeverageIndustry in China

Thebeverage industry Chinawashardlyrecognised an economic in as contributor sincetheformation Peoples of Republic China(PRC)in 1949.As a result,the industry of developed a slow pacein the firstthreedecades the at of formative yearsof PRC.Between 1960sand 1970s,duringthe CulturalRevolution5 China,the overallbeverage of marketwasfragmented. Enough facilitieswerenot provided the govemment develop sector. by to this Though there were almost60 soft drink factoriesin Tianjinalone,manyof them were very smalland inefficient.6 Until 1978,an orange-flavoured carbonated beverage Qishui, Juzi soldin glassbottles, wasthe onlysoftdrinkbeverage distributed acrossthe Chinese market.? thattime,consumption beverage considered luxury. At of was a

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"The Coca-Cola companyoffersto buy Hu~an juice group', http://wwwthecoca-colacompanycom/presscenter/nr_20080903_tccc_hu~anjuice-9rp_tender_offerhtml,

September 3" 2008

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McDonald "China review Cola forjuice Joe, to Coca bid maker',

5 polmcal economic and violence chaos, and whichgrewto include largesections Chinese of society eventual~ and brought entirecounby the brinkof chlilwar the to

"Economic ofCoca-Cola Impact System China", on , August 2000


Coca-Cola's Acquisition China'sHuiyuan of Juice:A JuicyDeal?

However, open door policy introducedin 1979 accelerated the growth in the erstwhilestagnatedbeverage industry. Withthe entryof foreignMNCslike Cokeand Pepsiin 1979and 1981respectively, beverage the industry in Chinaexperienced sea change.In addition,mostof the Chinese a couldaffordsoft drinksbecause increase of in their net income.Thus,the beverage industrydeveloped rapidlydue to foreigninvestment was floodedwith and varietiesof beveragesincludingsodas,fruit juices, natural proteindrinks made from beans,dairy drinks, RTD beverages, mineralwater and drinksmadewith coconutmilk and tropicalfruits apart from alcoholicbeverages. In the 1980s,the foray of multinationalbeveragecompaniespopularisedthe consumptionof carbonated drinks.As per the Chinesepoliciestowards ForeignDirect Investment(FDI), the carbonatedbeverageswere added underthe categoryof 'controlled'in the state planning.This meantthat the investment the beverage in industryis subjectto government approvalon case-by-case basis.The Chinesegovernment startedencouraging FDls in the soft drink market.Sincethen,the soft drink marketgrewat an averagepaceof 21%annually. over For a decade,till 1990s,carbonated drinksmaintained lead with a marketshareof 80%.8 Globalisation markeda new changein the beverageindustryof China.According statisticsreleasedat the to National FoodIndustry WorkConference, production consumption beverages the and of increased overthe years.In over a decade,the beverage industryexpanded from a singlecarbonated drinkto a varietyof drinksthat included carbonated drinks,bottledwater and fruit juices. In the 1990s,considered the secondphaseof growthin the as Chinese drinkmarket, soft bottled watersurpassed carbonated drinkswith40%market share. demand bottled The for watercan be attributed the scarcity puredrinking to of waterandthe beliefof the Chinese mineral that wateris good for health. In 1999,considered thethird phasein the Chinese beverage as soft industry, RTDteadominated industry the the growth with market shareof 12%andannual growthrateof 85%.9 is the mostconsumed Tea beverage the people by of Han,the majorityraceof China,as they believe that hot tea with mealswill helpin shedding saturated fats. By the late 1990s, Chinese consumers wereat crossroads,as manyvarieties beverages of floodedthe Chinese markets. Withthe adventof MNCs,Chinese consumers startedembracing newideasand habitsthat weredifferent from their originalculture.The Chineseconsumption patternwas also driven by the development mediaand of technology. Chineseconsumer The cultureand economic systemwere considered be differentfrom that of the to developed countries. Gradually, Chinese the consumers startedprocuring goods,whichwereonceunavailable, new unaffordable forbidden. or Withthe increasing demand soft beverages changing for and tastesof the Chinese consumers, companies were compelled constantly to innovate newflavours. Thisgaveriseto intense competition among domestic foreign the and players.For instance, Pepsiand Cokeenteredintovariousbeverage segments non-carbonated like drinks,RTDtea andjuice drinks.The 'slick'advertising campaigns the playershelpedin triggering demand soft drinks. of the for The onsetof the 21st centuryheralded new era of consumerism China.Since2002,the Chinese a in economy grewat a rapidpaceandincreased standard livingof the people. the of Thiswasevident fromthegradualincrease of China'sGDP(ExhibitI). Rapidurbanisation spurtthe spending capacity the middleclass.China'spercapitagross of nationalincomecrossed$1,000in 2002and reached $2,010in 2006.10 resulted the increase disposable This in of incomeof the urbanpeople.It is expected by 2010,40 millionhouseholds eam $6,000a year equivalent that will to $24,000in tenns of purchasing powerparity.11 Growing economy, booming retailsectorand increasing household income brought variety goods theconsumers' has a of at disposal. introduction western The of meals through McDonald's and PizzaHut has popularised drinksespecially soft amongthe urbanyouth.

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JiahuaChe, "And the BottlesAre Open:An Introduction China'sSoft Drink Marker,, to 2002-2003 IbMj. "Chinaprope~gk>bal grl7Nth", http://www.chinadai~.comcn/bizchina/2007-10/12/contenL6168704.htrn, 2007 October 12" Yougang Chen~d Jacques Penhirin, "Marketing China's to Consumers", McKinsey 771e Quarterly, December 2004

Coca-Cola's Acquisition China'sHuiyuan of Juice:A JuicyDeal?

ExhibitI China'sGDPGrowth2002-2006


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Source: "China propels global growth', http:/!, October 12" 2007

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Soon,beverage companies brisked theirmarketing up activities. Competition intensified the Chinese in beverage market withbothdomestic wellas westemplayers Coke(1979), as like Pepsi(1981), Groupe Danone (1987), Wahaha (1987), Tingyi(1992), Uni-President (1992)andHuiyuan Juice(1992) vyingfor a biggermarket share.Foreign players adopted advertising promotional and strategies attractthe customers. to Theylaunched in whichforeignmodels ads wereshownconsuming theirbrands. the contrary, On CokeandPepsisignedthe renowned personalities Chinato of endorse theirproducts. Thus,foreignplayers the Chinese drinkmarketplayeda majorrolein the development in soft of the sector. AlthoughMNCsbeganinvesting the beverage in business, FDI is scrutinised subjected government the and to approval. Thesecompanies foundit difficult enterthe Chinese to markets the regulations as imposed the Chinese by government wereunclear. The stringent lawsand complex regulatory framework Chinaposeda hurdlefor MNCs, of whichwished enterthe Chinese to markets. Thosecompanies, whichweresuccessful entering Mainland in the China, wereallowedto operateonly by meansof joint ventures werenot allowed operateon theirown. but to However, the past 3 yearssince2005,Chinahas revisedmanyof its policiestowardsforeigninvestment in to conform theWTOinvestment to requirements. Eventhen,industrial planners encouraging thoseinvestments, are only whichmeetthe goalsof the country'seconomic development. Despitethesechallenges, investors still eagerly are forayinginto Chinaalluredby its hugeconsumer base.Whencompared otherindustries pharmacy, to like steel,etc., which are totally underthe state control,companies the soft drink industryof Chinaare less intervened the in by government havea hugepotential growth. and for Priorto 2005,the carbonated beverage marketwas in a stateof saturation big companies and beganexpanding intonon-carbonated market, drink whichwasin a nascent stagein thosedays.China's total production carbonated of beverage 2005was7.71million in tonnes, by 20.82% up compared 2004.In2005, Chinese to the carbonated beverage industryachieved salesrevenueof RMB31.9 billion,up by 21.63%compared 2004.Thoughthe growthratesof to bothproduction salesin 2005exceeded and 20%,the profitability declined compared 2004.12 amongall the as to But beverages, fruitjuice andtea drinkshada stronggrowthrateduringthis period. the

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'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, 15" 2006 May

Coca-Cola's Acquisition China'sHuiyuan of Juice:A JuicyDeal?

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However,in the early 2000s, the beverageindustryfaced recessiondue to the outbreakof severe acute respiratory syndrome that clearlyreflectedin the consumption patternof soft drinks.The incidentbroughthealth awareness amongthe Chinese. a result,significant As marketchanges occurred withinthe softdrinksubcategories. The carbonates startedlosingtheir shareto fruitjuicesand bottledwaters.Fruitand vegetable juicesslowlygained prominence the soft drink markets.The majorplayersbeganshiftingtheir emphasis in from carbonated drinksto fruitjuicesand othernon-carbonated sectors.Thisis whenthe soft drinkmarkets Chinaenteredthe fourthphase of of development whichthe freshfruit juices became catalystfor growth. in the The fruit juice marketsare dividedinto two categories: low-endand high-end category. The low-endcategory comprises thosejuiceswithjuice contentlessthan 25%.Coke,Uni-President Tingyiare the majorplayersin of and this category. The high-endcategorycomprises thosejuices with juice contentof 25%-100%.Huiyuan,Haiko of Yeshu,Pepsiand NongfuOrchard the playersin this category. are Thus,the development carbonated of drinksand bottledwatergradually sloweddownandthe production fruit of juiceandteadrinksincreased rapidly. thefamous All companies launched products. example, new For Cokeintroduced Tealux and Uni-President Enterprises launched EnglishBlackTea.By 2006,the salesrevenue variousbeverage of products was aroundRMB47.2 billion(ExhibitII). As a result,within5 years,by 2006,the soft drinksmarkethas increased gradually, growing anaverage at annual of 14%.13 rate

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ExhibitII SalesRevenue VariousBeverages China(in %)- 2006 of in 5

Carbonated Drinks

Tea Drinks 16 '


Juice Drinks 25
Source: "China: Apple Crop, Juice Marker,, April 2008

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The shift in consumerpreferences also tilted the demandtowardsjuice drinks and non-carbonated drinks. The playersin the soft drink marketdiversified their productrangefrom their core productsand startedproducing RTD tea, bottledwater,herbaldrinks,juice and juice drinks. In 2007, GroupeDanonehad the majoritymarket sharein the overallsoft drinkssegment followedby Coke(ExhibitIII). But in the freshjuice segment,Cokestood first with its MinuteMaidorange juicefollowedby Uni-President's freshorange juice and Tingyi'sDailyC in the 25% juice contentcategory(ExhibitIV). Theseare followedby Huiyuan,HaikoYeshuCo. Ltd., Pepsiwith its Doleand NongfuOrchardin the 25%-100%juice contentcategory. As of February2008,there are about6,000fruit juice producers China.According the NaturalBureauof in to Statistics China,mostof the fruitjuice manufacturers locatedin Northand SouthChina.For instance, of are South Chinaproducesabout 359,799.49 tonnesi.e., 22% of the total volumeand the East Chinaproduces 476,562.06 tonnes(29%of thetotalvolume).14 fruitjuicemarketin Chinais mainlyled by Taiwan-based The enterprises Unilike PresidentEnterprise and MasterKong;famousMainland China-based enterprises Huiyuanand Wahahaand like largeMNCslike Cokeand Pepsi.


'Soft drinks marketin China', http://www.cbronline.corn/researchasp?guid=DBCM2104 'ChinaFru~JuiceBeverage Industry Report. 2008',http://wwwresearchandmarkets.corn/research/f7b2a2/china_fruiUuice, February 2008

Coca-Cola's Acquisition China'sHuiyuan of Juice:A JuicyDeal?

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

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ExhibitIV MarketShareof MajorFruit Juice Playersin China(in %),2007

Source: 'China: Apple Crop, Juice Marker, htip://, April 2008

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The beveragemarketin China is very dynamic.Playersfind it tough to retain in the marketif they do not changetheir game plan accordingly. The Chineseusuallyprefer beverages, which are perceived be healthy to and those,which are considered be betterthan the traditional to carbonated drinks.As such,the carbonates soft witnesseda very flat sales growthrate (ExhibitV). All these factorsdemanded playersto produceproducts, the whichappealed the tastesand preferences the local people.For instance, to of tea-based drinkswith varying soft flavoursbecamesuccessful they suitedthe traditional as tastesof the local Chinese. Companies, which were successfulin adaptingthemselves the changingpreferences introducing to by new brandsand therebypenetrating productinto the marketwith good advertising the concepts, were able to have a foothold in the market.Companieslike Coke have adoptedstrategiesthat were in tandemwith the changing marketscenario. Thus,Cokebecame marketleaderin the Chinese drinkmarketdespitefiercecompetition the soft

Coca-Cola's Acquisition China'sHuiyuan of Juice:A JuicyDeal?

ExhibitV ChineseBeverage Market,2002-2006: Changein VolumebyCategory(%)


2001/2002 2002/2003 2003/2004 2004/2005 2005/2006 8.9 7.7 19.9 44.3 12.3 8.9 -12.1 14.0 23.5 9.6 -0.2 0.6 3.3 4.6 17.9 64.5 9.9 11.7 -21.5 20.9 -0.3 7.1 -0.1 0.6 9.0 15.5 26.1 38.5 0.2 2.5 -5.5 7.1 8.9 12.8 -0.8 0.6
16.9 10.2 14.9 42.5 15.2 26.0 13.1 18.5 20.5 17.0 -1.5 0.6

Tea Beer Bottled Water Milk Carbonated Soft Drinks Fruit and Vegetables Beverage~ DistilledSpirits Wine Coffee Subtotal All Others' Total

14.3 11.5 13.9 8.2 14.2 38.9 13.9 25.0 8.1 14.1 -1.5 0.5

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.Indudes tap water,powdered drinksand miscellaneous others

Source: "2008 The Multiple Beverage Mal1letplace in China (Autumn 2008)", htip://W\'

amongthe players. Coca-Cola in China: Its Market-entry, Growth and Expansion Strategies "I'd rather of thirstthandrinkCoca-Cola. die I'd rather starve death to thaneatMcDonald's."15 - Protester's Placard Guangzhou at Demonstration against American the Bombing Belgrade, 1999 of May Coke initially faced much resistancefrom the Chinese.Coke's presencein China dates back to the early 1920swhenit first enteredthe country. Initially, company not haveits manufacturing the did basein Chinaand had to importbottlesfrom its manufacturing facilityin Philippines. 1927,Cokehadset up two bottlingplantsin China, In one in Shanghai(largestCoke bottlingplant outsidethe US) and the other in Tianjin.A third bottlingplant was startedin the northeastern coastalcity of Qingdao. PostWorldWar II, in 1949,the Chinese government persuaded the foreigncompanies quit the country. all to All the bottling unitsof Cokewerenationalised the company's and permit import concentrate seized.For more to the was than threedecades, directproduction foreignbeverage by companies Chinawas ceased.Duringthis period,the in country'saversion towardsforeignbrandsand MNCswas at its high.This was evidentwhen in February1951,a Chinese officialwas sentenced 5 yearsof imprisonment havinginclination to for towardsimperialism a favourfor and Coke.16 However, 1979,with the liberalisation economy, by of Chinaopeneddoorsto foreigninvestment Cokewas and
'5 HooperBeverley, "Globalisation res~tancein post-Mac and China:The case of fore~n consumer products", Asian StudiesReview,December 2000, page439 '5 ibid, page441 '7 A Friendship Store~ a state-run store in China,whichinrnal~sold ~stem, imported nemsand Chinese and craftsexclusive~ tourists,foreigners, art to diplomats and government officia~

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Coca-Cola's Acquisition China'sHuiyuan of Juice:A JuicyDeal?


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the first US company re-enterChina.After re-entry, to Cokewas allowedto sell its products whichwere initially imported from California and HongKong- to foreigners specialzoneslike hotelsand friendship at stores17. Coke first shipped30,000cases to important cities like Guangzhou, Shanghai and Beijing.Over a periodof time, the demandfor the productincreased. This pressed needfor Coketo bringthe productinto the marketas quickly the as possible.In an unusualstep, Cokesold the concentrate the local bottlingunitsbut ownednoneof the units. to Instead,it had setupoperations Chinain orderto help the government renovating old bottlingunits and in in the build new facilities,directlytransferring technology capitalto China. and In the 1980s,Coke plannedto start its production China.To embarkon the actualbottlingand distribution in system,it enteredintojoint ventures the Chinese with partners. 1982,it builta plantin Beijingandhandedit overto In the govemment returnfor a permission expandsales and distribution China.Later,it also built a plant in in to in Guangzhou. However, Cokehanded thisplant theChinese over to government received and payment theconcentrate for supplied the plantsin Beijingand Guangzhou. to In 1984,Cokebuilta bottlingunitin Xiamen, of China's one newlydesignated 'SpecialEconomic Zones'(SEZs), whichproduced Fantaand Spritein addition Coke.Thesameyear,Cokehadalsosetupa bottlingplantin Zhuhai. to It wasthe company's joint venturewiththe formerministry LightIndustry first of (nowthe StateLightIndustry Bureau (SUB),underthe StateEconomic TradeCommission).18 and In 1986,Cokehad enteredinto a 'Contractual JointVenture' (JV)with its Shanghai partnerto builda plant.The Shanghai operations werea 50-50 JV.WhileCokemaintained 100%controloverits beverage concentrate plant,the Chinese ownership the bottling had in plant. a resultof the JV,the Chinese As leaders approved saleof beverages the to theirconsumers. 1988,Cokeopenedanother In plantin Shanghai.19 However, thesebottlingunitsrequired all raw materials production; majorchallenge Cokein the Mainland for a to China. Torunits business China, company in the required drinkingredients, packaging materials, bottling-line equipment, construction servicesand business financialservices. and Initially, Cokefoundit difficultto locatethe raw materials usedin the preparation the concentrate. orderto acquire of In supplies, provided it domestic companies financial with assistance technical and advice develop to equipment improve and qualitystandard. Cokehadbeenspending about $600millionannually raw materials packaging on and supplies China.20 a result,100%of the concentrate in As was beingproduced locallyand morethan95%of the raw materials usedwerebeingobtained fromthe localsources. Cokerealised thoughit waseasyto obtainsupplies, that therewasa dearthof qualified personnel China.So in in 1988,Cokealongwiththe Chinese government setupa training centreat its Tianjin bottling facility. centrehadnot The only trained Coke'spersonnel also trainedbottlingplant managers but and government officialsin technicaland business skills. ThoughCokemanufactured concentrate, the bottling the end product of provedto be a majortask.Hence,Coke hassetupbottling facilities throughJVsin Chinato bottleits products. Bottling Cokeproducts majorlyhandled of is by two Hong Kong-based partners:Swire Pacificand the Kerry Groupalong with ChinaNationalCereals,Oils and Foodstuffs Import ExportCorporation and (COFCO) Coca-Cola and Bottling Investment Group(BIG)(Exhibit The VI). bottlingsystemof Cokehasspreadacross Chinese the landscape. However, Cokedoesnot haveanybottlingunitin

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'8 .Economic Impact Coca-Cola of System China., on opcit. '8 Ibid. 20 'M!~ert Drake, .Coca-Cola inChina: Quenchi~ Thirst a Billion., the of http://www.chinabusinessreviewcom/public/0107/we~erthtml, Juiy-August 2001 2' .Coca-Cola seesChinaas biggest market',, September 2007 16"

Coca-Cola's Acquisition China'sHuiyuan of Juice:A JuicyDeal?

ExhibitVI Coca.Cola's Joint VentureBottling Plantsin China

Location 1.Beijing' 2 Chengdu 3 Dalian' 4 Guangzhou' 5 Harbin 6 Haikou 7 Hangzhou 8 Hefei 9 Kunming 10Nanjing 11Nanning 12Qingdao 13Shanghai' 14Shenyang 15Taiyuan 16Tianjin 17Tianjin 18Wuhan 19Xian 20 Xiamen' 21Zhengzhou 22 Zhuhai 23 Dqngguan
"IMth Source: tYX> txJtIIing plants

Nameof the Joint VentureBottlin~ Plant 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. JinmeiBeverages (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. TaiguBeverages (Dongguan) Ltd.

Yearof 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


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ExhibitVII Bottler Locationsin China(as of March2000)

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China',, August 2000

Coca-Cola's Acquisition China'sHuiyuan of Juice:A JuicyDeal?

the Westerninteriorprovinces China(ExhibitVII).As of September of 2007,Cokehas 37 bottlingplantsacrossthe country.21 Western The provinces still untapped are because the adverse of climatic conditions lackof necessary and resources production. for Despitethe absenceof bottlingunitsin the westemregions,the brandsof Cokeare availablein the far-inland markets to theefforts thedistributors Coke.Mostof theCoke's due of of products soldthrough are wholesale distributors. Some thecompany's of partners largestate-owned are sugar, tobacco wineenterprises. havebeendistributing and They the products Cokesince1950s. of Besides, Cokehasits ownwayof supplying products the retailers. employs the to It direct-to-retail distribution system. manage distribution salesto retailers, hasset up salescentrein areas To its and it withpopulation morethan 1 million. of Thesesalescentres, whichalsoserveas warehouses, whollyownedbythe are bottlers Coke.Personnel the bottling of at facilities takecareof the deliveries marketing and staffvisitthe retailers to takethe localorders. 'Coca-Cola system', valuechainof Cokein China, the whichcomprises bottlers, of suppliers vendors and madea great impacton the country'seconomy. Coke employsmorethan 400,000peopleacrossthe countrydirectlyor indirectlyin its production distribution and network. the investment Cokein Chinaincreased, demand As of the for personnel also increased. This createdopportunity manymorepeople, for thus furtherincreasing Coke'simpacton the Chinese economic system. Sinceits re-entry China,Coca-Cola into system invested has morethan$1.3billionfor establishing productand strengthening distribution its its network.22 Coke'seffortsto gain a footholdin Chinathus became fruitfulandthis was bestillustrated througha studyin whichthe symbolof Cokewas recognised almost by 98.4%of people, who oncestrongly opposed product.23 the Glocal Strategy of Coca.Colain China Coke's localisation brands of started 1988. Tianjin in The jointventure helped had Coketo produce non-carbonated beverage brands.Coke,apartfromproducing mainbrands,launched its customised flavoursas per the localtastes underthe samefacilityfor 6 years. Later,the plantwas split into two separateentities,TianjinJin Mei produced domestic brandsandTianjinCoca-Cola Bottling Company produced Cokebrands. By the mid-1990s, Cokesold morethan 8 billionbottlesand cans annuallyin China,despiteprotests faced by Cokeinitially.24 Eventoday,the company's presence evidentin mostof the regionsof China.The brand'slogo is is foundon the pushcartsin the commercial streets majorcitiesandalsoon the smallshopsin the neighbourhoods of of rural villages.Cokesells its internationally knownbrandsCoke,Fantaand Spriteacrossthe country.It also sells 'Smart'underthe soft drinkcategoryand 'Ice Dew'underthe bottledwatersegment exclusively China.By then, in Cokestartedreapingprofits,morethan 10yearsafterits re-entry China. into The success Cokein Chinadid not comeso easily.The product of facedfew hiccupsinitiallyas its brandname was misunderstood the localsof China.WhenCokeenteredthe country, employees by its triedto createa Chinese equivalent its trademark. of However, Chinese the versionmeant'bitinga waxtadpole'. such,it was immediately As rectified thetrademark registered Chinese and was with characters mean'Delicious refreshing'. success that and The of Cokein Chinacan be attributed its abilityto adaptitselfto the localtastesof Chinese to people. Forachieving this, Cokeunderwent strategic a transformation. Rather thanfollowing globalstrategy, adopted a it a 'glocal'strategy. Cokeintroduced products perthe tastesand preferences the Chinese. as of In January1996,the companylaunched first domesticbeverage its brand TianYu Di (Heavenand Earth)that appealed peoplewho preferregionalnon-carbonated to flavours.The products manufactured underthis brandare fruitjuice drinks(mango, Iycheeandothers)and RTDtea (oolongandjasmine). Coketriedto appease consumers Chinaby introducing the of products a localtinge.So in 1997.Cokeandits with

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Coca-Cola's Acquisition China'sHuiyuan of Juice:A JuicyDeal?

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partnerTianjin Jin Mei introduced Xingmu (Smart),a carbonatedsoft drink line with bright colours and exotic flavours. Under this brand, many flavours like green apple, watermelon,coconut, peach and orange were introduced, which provedto be extremely successful. Coke has also introduced non-carbonated beverages such as Guo Li Chen (MinuteMaid Pulpy),a variationof its MinuteMaid Orangejuice, 000, a non-carbonated fruit beveragedevelopedespeciallyfor childrenand YuanYe (OrangeLeaf Tea). Minute Maid Pulpy, launchedin Chinain 2004(thatcontainsless than 24% realjuice), is the top selleracrossall the regionsof the countryin the low-endjuice drink category. Cokehas adopted localisation its strategy only in its products also in its marketing, not but advertising public and

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ExhibitVIII Chronicleof Coca-Cola Relevance ChineseHistory in to

Year Events

1883 1923 1925 1927 1937 1948 1949 1978 1997 1999'

Coca-Cola company launched. Zedong born was Mao was Robert Woodruff W. became chairman Coca-Cola 1923 the of in SunZhongshan,Chinese a revolutionary leader passed away Coca-Cola appointed Chinese two bottlers Tianjin Shanghai in and Japan began invade to China Chinabecame first overseas the market whereCoca-Cola's annual selling exceeded million 100 boxes People's Republic China founded of was Onthe samedaywhenChina the USannounced establish and to diplomatic relations, Coca-Cola announced bethefirstinternational to consumer goods company returning China to M.Douglas Ivester became CEO Coca-Cola. resumed the of China sovereignty Hong over Kong SOUl anniversaryPeople's of Republic China. of China resumed sovereignty Macau over
Chinese web site", Colporate Communications: An International

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Source: Van 1ian, 'Communicating with local publics: a case study of Coca-Cola's

Journal,Volume11, No.1.2006, pages 16-17

relations.For example,Sprite is consideredas a local beverageby many Chinese,as it was endorsedby Fu Mingxia,a Chineseworld-classfemale diver.25 also launchedits websitein the Chineselanguagein orderto It communicate the localChinese. with Coke has showedits respectfor Chinain manyotherways. It paralleled the history Cokewitha focuson the majorpolitical of eventsin the modemChinese History through chartin the Chinese a language (Exhibit VIII). Competitors of Coke in China

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" VanTian, 'Communicating local publics a case studyof Coca-Cola's with Chineseweb site', Corporate Communications: International An Journal,Volume11, No.1,


Coca-Cola's Acquisition China'sHuiyuan of Juice:A JuicyDeal?

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Coke'searlyentryinto Chinahas helpedit to havea competitive advantage termsof extensive in manufacturing anddistribution network. Cokeis at presentcompeting Pepsi,Uni-President with Enterprises Corp.,Wahaha, Tingyi and GroupeDanone the soft drinkmarkets China. in of Pepsihas beenone of the majorcontenders the carbonated in segment sinceits entryinto Chinain 1981.Coke

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ExhibitX PerCapitaConsumptionof Coke'sBeverage Productsin ThreeDecades -1987, 1997and 2007

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has beenfiercelybattlingwith Pepsito lurethe customers China.Cokealwayshadbeenaheadof Pepsiin terms of of marketshare in China(ExhibitIX). By the late 2000s,Cokewas available 80% of the Chinesepopulation.2e was drivenby the increase to This in the per capita consumption Coke over a periodof time (ExhibitX). In 2006, Coke sold 4.33 billion litres of of carbonated drinksin China,a sales-volume of 70% over its resultsin 2000and Pepsisold 2.93 billionlitres, hike 32% less than Cokebut 93% betterthan it did in 2000.27


'EconomicImpactof Coca-Cola Systemon China', op.cit KeittlFijz-Gerald, 'Pepsi'GoesRed'in China',, 2~ 2007 September

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

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ThoughCokeis leadingin termsof marketshareand sales,it is still trailingbehindPepsiin termsof adapting itselfto the changingpreferences consumers. of Pepsihas beenquickto reactto the changing trendsand change its game plan accordingly. Pepsioffersfour main productlines in China:Pepsi-Cola drinks,Gatorade soft sports beverages, Frito-Laysnacks,and Quakerfoods. Pepsi has introduced Tropicanaand Dole in the fruit and fruit juice category.To diversifyits portfolioand capturemarketshare in the food industry,Pepsi has been investing heavilyin the localsnackfood marketoverthe pastseveralyears.Pepsioffersmanybrandsin the saltedsnacks segmentof Chinawith variousregionalflavourssuch as BeijingDuck and Spicy Crab to satisfythe tastes and preferences the local customers. of Pepsi also tried rigorously lure the consumers to duringthe Olympicsseason.ThoughCoke was the major sponsorof 2008BeijingOlympics, Pepsiwas neckto neckwith Coke in terms of marketing its products.Coke of

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ExhibitXI MajorCompetitorsof Coke

Competitors of Coke Pepsi Uni-President Enterprises Corp.

Major Sectors of Operation

Competes with Coke in the carbonated sector. It has introduced Tropicana and 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 competewith Uni-Presidentin the RTDtea 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 Future Cola 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 teamaker, 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% of the 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 in China consists of yogurt, biscuits and beverages. It is the largest player in the soft drink marketsof China and also holds 23% stake in Huiyuan, a leading fruit juice producer in China. Coke competes with Danone in the fruit juice segment.


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Compiled by the author

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went on a 4-monthtour with the Olympictorch throughmore than 100 cities as a major sponsorof the event. This helped Coke to introducethe brand to new customersin the regionswhere it had no presence.Pepsi in response the sponsorship Cokeintroduced cans in placeof its originalblue onesto supportthe country to of red and also to lure those consumerswho had the disposableincomebut had no brand knowledge. Competitors Coke in Chinaoperatewith a well-diversified of productrangefrom RTDtea to noodles(Exhibit XI). Majorplayersin the soft drinkindustry Chinaare quicklychanging of their strategies caterto the increasingly to health consciousChineseconsumers. Coke'scarbonated beverages in the declining are stageof productlife cycle.Carbonated drinksare becoming


Coca-Cola's Acquisition China'sHuiyuan of Juice:A JuicyDeal?

less attractivein the recenttimes. Besides, risinghealthconsciousness the Chineseconsumers led to the of has drasticchangesin the soft drinkspurchasing pattems.In this changing scenario, needfor Coketo diversifyits the productrangeand retainits positionin terms of marketshare is very muchevident. Fruit and vegetable juices are considered be growthenginesin the soft drink marketas the consumers to are shiftingfrom carbonated drinksto non-carbonated drinks.Cokehas alreadystartedto take awaythe fizz out of its drinksandstarted shifting towards production healthier the of beverages. itseffortto tapthegrowing In affluence the of Chinese consumers alsomeetthe increasing and demand freshfruitjuices,Cokehasoffered buyHuiyuan for to Juice Ltd.,one of the majorplayersin the fruitjuice markets China. of Coca.Cola's Acquisition of Huiyuan

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HuiyuanJuice Group of China BeijingHuiyuanBeverage and FoodGroupCo., Ltd. was foundedin 1992(Annexure Huiyuan I). Juice Group (Huiyuan) China'sbiggestfreshfruitjuice maker,whichcompetes is mostlyin the high-end juice marketwith more than 40% marketshare.28 is engaged producing marketing andvegetable It in and fruit juice drinks.It offersa wide rangeof beverages suchas 100% juice,nectars, juicedrinks,kids'juicedrinksandmixedfruitandvegetable juices.It holdsthe No.1positionin Chinain 100%juicesand in nectarswithjuice contentrangingbetween 25%-99%.It has builtover30 plantsacrossthe country, linking4 millionsquaremetresof raw material basesandorchards fruits. for Huiyuanhas developed and producedmorethan 500 kinds of productssince its inception. The marketshareof Huiyuan fruitjuice marketis 46% andthat in nectarsis 39.8%.29 in Huiyuan exportsits juice concentrates, pureesandjuice products morethan 30 countries regions.Export to and business Huiyuan beengrowing a rapidpace.The products mainly100%applejuiceandkidsjuicedrinks of has at - are exportedto the foreignmarketsof US,Australiaand NewZealand.The products exportedto morethan 20 European Americancountrieshavereachedabout 150,000 and tonneswith a profitof $135 millionin the past 15 years.30 In order to furtherexpandits business,Huiyuanwent for an IPO on February 23rd 2007.Thereby, China the Huiyuan JuiceGroupLtd.was listedon the mainboardof the HongKongStockExchange an increase stock with of priceby 66?/o 937timesoversubscription the IPOdate.The majorstakeholders the company Groupe and on of are Danone 23%shareandWarburg with Pincus, private the equitygroupof USwith6.8%share. increasing The business of Huiyuan drivenCoketo makea premium had offerto acquireHuiyuan. Thisofferis indicative Coke'seagerness of to tap morelucrative niches. Coke's Offer to Huiyuanand the Impact of Anti-MonopolyLaw of China on the Deal CokehadofferedHK$12.20 ($1.6)a sharein cashto Huiyuan, whichwasnearlythreetimesHuiyuan's stockprice of HK$4.14($0.533), acquireall the issuedsharesof Huiyuan.Uponthe completion the deal, Huiyuan to of Juice wouldbe de-listedfrom the HongKongStockExchange. Cokehas received approval 66%of Huiyuan's for shares from Danone,WarburgPincusand Zhu Xinli, Huiyuan's chairman.31 September 2008, Coke has filed its On 23rd application Chinese with antitrust officials acquire to ChinaHuiyuan JuiceGroupLtd.Theacquisition wouldhelpCoke to diversifyits drinksportfolioand expandbeyondthe carbonated drinksfor whichthe marketin Chinais slowing down.Euromonitor'2 forecasts the retailvalueofjuicesalesin Chinawillgrowabout94%through that 2012,compared

.c () "3 c Q) ~ <9 '0 .2:'m G3 > "c ::> Q) :5 m c Q) E Q) 0> co C co ~ m 'u c co c ~ () "0, Q) " Ci3 ~ aJ Q) :5
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Sue and McKay Betsy, 'Coke deal to test China's new antitrust law', The Wall Street Journal Asia, September 5"
of Huiyuan Group',

2008, page 4

29 'Introduction 30


'Coke pulls-off biggest ever acquisition of Chinese firm with $24-billion buy of Huiyuan Juice',
20080904_hu~uanjuice.htrnl, September 4" 2008 Euromonitor International ~ a provider of business intelligence on industries, countries and consumelS. business reference books, online infom1ation systems and bespoke consulting projects.
'Coke deal to test China's new antitrust law', opcil It has


more than 30 vealS of experience in publishing market reports,


Coca-Cola's Acquisition China'sHuiyuan of Juice:A JuicyDeal?

with the growthof about30%for sodas.If the deal is consummated, Cokewouldcontrol37%of the Chinese juice market.33 But,on August1st2008,Chinaimposed anti-monopoly According the new law,the acquisition the the law. to of Chinesecompanies foreignMNCswill be subjectto stringentchecksso as to protectthe country'seconomic by security. foreigncompanies As have begunto acquiremajorstate-owned enterprises companies and with famous brands, concerns aboutthe national security startedrising. Themainobjective the antitrust is to prevent of law foreign companies frombecoming monopolistic. Foreign companies shouldapplyfor approval the Ministry Commerce to of (MoC),if the acquisition the domestic of companyhas an affecton the nationaleconomic security, the purchase if takesplacein the keysectorsof Chinaor resultsin the transferof operating rightsof domestic brands. The deal beingthe first of its kind became challenging to the newlyimposed due anti-monopoly According law. to the law,any deal involving companies with a globaltumoverof $1.5 billion(RMB 10 billion)and whereat least two of the partieseachhas a tumoverof $60 million(RMB400 million)shouldfile for approval.34 Huiyuan Group's salesvolumein 2007totalledto just over RMB3 billion,whereasChina'smarketfor fruit and vegetable beverages is worth RMB40 billion.35 Cokehas 22% marketshareof overalljuice marketin Chinaand Huiyuanhas 15% marketshare,muchless than 50% of the wholejuice market.ThoughHuiyuanis a marketleaderin the 100%juice and nectars,these sectorsare relativelysmall when compared the overalljuice market.36 to Huiyuanbeing a well-known brand,the government officialsmay face protestsfrom the peopleof Chinato keepthe brandin the localhands.In an onlinepoll conducted a Chinese by, 82%of morethan 40,000 respondents opposedthe purchaseof Huiyuanby Coke.37 Synergies of the Deal Cokeexpectsto benefitfrom the deal as Huiyuan a strongraw material has base.It also has 1,800distributors and 200 salesoffices.It has enoughpotential promote salesof its 200juice products to the underits core brand.38 Majorchallenges the Chinesemarketare procuring in raw materialsand effectiveproductdistribution channels. Coke'sacquisition Huiyuan of wouldbenefitCokenotjust in termsof strongsalesof popularbrandin a fast growing marketput also in terms of Huiyuan'smanufacturing facilities.It would enableCoketo acquirecontrolover the distribution network Huiyuan alsosecureraw material of and supplies are moreeasilyavailable the Mainland that in China. Over the past 3 years since 2005, Huiyuan's compound annualgrowthrate has been 31%.The overalljuice

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WaldmeirPatti and TuckerSudeep, .Asianantitrustlaws t!lreatento tie up globaldeals,lawyerswarn', Financia/1imes, July 28" 2008,page 1 'BOABC Comments Coca-Cola's on Acquisitionof Hu~uanfrom a China Viewpoinr, http//
Q9.15-200810004884760&EDATE, September 15'" 2008

" LuoKevin, .Company Note',, September 2008 10" 37 .Coke to testChina's antitrust opcit. deal new law',
.China Business', http://wwwatimescom/atimes/China_Business/JI09Cb01.htrnl, September 2008 9" Mitchell Dan, .Coke's China Play Expensive, Carries Risks',, 3" 2008 September " .Chinainslstson princip~of mmet economy Hu~uantakeover',!s-<)n-principle-of-market-economy-on-Hu~uan-takeover.shtrnl, on

September 2008 10" 41 "Coca-Cola newtakeover to tesr, http//, 5" 2008 puts law September 42 "Hu~uan's saleto Coca-Cola rightmove",,8" 2008 September

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

Exhibit-XII Comparison Huiyuan's2008and 2007Results of

RMB (in million)

2008 1,294.4 902 391.5 507.3 381.5 367.3 117.6 25.0

2007 1,365.2 861.9 503.3 490.0 367.5 342.8 145.4 27.1

Change(%) (5.2) +4.8 (22.2) +3.5 +3.8 +7.1 (19.1) (7.7)

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Revenue Costof Sales Grossprofit EBITDA Profitbeforetax Profitattributable equityholders to Adjustedprofitattributable equityholders' to BasicEarnings share(RMBCents) per
. Exduding
frOOl one-off interest incx:xne

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frOOlIPO share subscription, interest expenses and dlange of fair value on Convertible bonds, exdlange gains

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Source: Luo Kevin, "Company Note", htlp://, September 10" 2008

market of China has been growing at an annual rate of 12%.39 per the statistics,Coke, on acquisitionof As Huiyuan,would have the leadingpositionin the China'scompetitive beveragemarket.It wouldovertakeGroupe Danone,which had a 16.3%marketshare in 2007.40 Huiyuanalso exportsto morethan 30 countriesincluding US.The deal wouldhelpCoketo dominate globalmarketfor non-carbonated the drinksin the wakeof the declining demandfor carbonateddrinks. Huiyuanagreedto Coke'sproposalas it had met a growth bottleneck due to lack of financialsupportfrom banksand the govemment.41 the revenues Huiyuan Also, of saw a downtumin 2008(ExhibitXII).Afteracquisition, Coke would retain the Huiyuanbrand and would furtherdevelopthe brand.Accordingto Zhu Xinli, presidentof Huiyuan Juice,"Thecooperation Coca-Cola helpthe Chinese to enterCoca-Cola's with will firm globalprocurement systemand will benefitHuiyuan,its employees and consumers."42 Challenges Ahead The majorchallenge aheadfor the Coke-Huiyuan is the probability approval. deal of The prospects approval of are still unclear. The deal is yet to be approvedby the antitrustofficialsof China.The deal wouldface two main challenges: the government not approve dealand(2) the acquisition takea longtimeto materialise. (1) may the may Toface the first challenge, Cokehasto re-strategise adoptnewstrategies capturethe affluentmarketof the and to Chinesebeverageindustry. far as the secondchallenge concerned, As is Huiyuanmightnot be able to enjoythe fruits of acquisition immediately. successof the deal wouldposea challenge the domestic The for companies and the wholestrategicsituationof the wholejuice industrymightalso change. The deal, if gets materialised after undergoing stringentrules and regulations the anti-monopoly of the of law China,would strengthen Coke'sstronghold one of the world'sfastestgrowingbeverage in markets. According to MuhtarKent,president CEOof The Coca-Cola and Company, "Thisacquisition delivervalueto our shareholders will andprovide unique a opportunity strengthen business China, to our in especially sincethejuicesegment so dynamic is and fast growingin China.It is also furtherevidenceof our deep commitment Chinaand to providingChinese to consumers the beverage with choicesthat meettheir needs."43

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Company to buyHuiyuan group', offers juice op.c~

Coca-Cola's Acquisition China'sHuiyuan of Juice:A JuicyDeal?

AnnexureI Historyof HuiyuanGroup

In 1992,Zhu Xin Li, founder of Huiyuan Group, established Shandong Zibo Huiyuan Company.
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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 headquartersto Beijing, starting to launch domestic juice market and built new plant.

In 1995, Huiyuan Group launched firstproduct 250m1100% tuming to bea great its Juice, out success.
In 1996, Huiyuan 1L Family Size Series Juice was launched. In 1997, HuiyuanGroup advertisedin CCTV prime-timeprogramme,tuming HuiyuanJuice into a well-knownbrand 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 'TopTen Enterprisesin China's Beverage Industry'. In 2000, with the eight sales regions being set up, Huiyuansuccessfullyestablisheda powerfulsales networkcovering the whole country. In 2001, Huiyuan became the first company to introducethe most advancedAseptic Cold Filling PET Line of the world level and took the lead in using PET aseptic cold filling technology in China'sjuice industry.

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In 2002,Huiyuanwas granted the honour of 'Leading Enterprisein Agro-indusmalisation China' and Huiyuan Brand in won the title of 'China Famous Brand'.
In 2003, Huiyuan was the first company to win the 'Safe Beverage Certification' in China's beverage industry. Cooperatingwith American In-ZoneCompany,Huiyuanachievedthe exclusivelicenseof the 'Belly Washer Brand'kids drinks in China. In 2004, Huiyuan productswere honoured as 'China Branded Products'.

In 2005,'China Huiyuan' was registered overseas and Huiyuan Group obtains the qualificationof 'Exemption from
Products Quality Inspection' by the State. In 2006, HuiyuanGroup establishedstrategiccooperationwith DanoneGroup of France,Warburg Pincusfrom the US, Netherlands DevelopmentFinance Company (FMO) from Netherlandsand DevelopmentPartnersfrom Hong Kong. Huiyuan won the honour of 'National Model Unit for IndustrialTourism'. 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,

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Coca-Cola - About Us

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~ __





What We Doll

Let's Get TOge~


. About Us Company History CompanyStructure Mission,Visionand Values

These are the declarations of our overall mission and goals, and the values that we are guided 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 our bottlers 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 satisfy
people'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: Leadership Passion Integrity Accountability Collaboration Innovation Quality
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News Release
ACQUISITION 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 decline approval 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 the information available and understood the transaction," Mr. Kent said. 'We were looking forward to working with the excellent 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 new brands, including in the juice segment. Our recently opened USD 90 million Global Technology and Innovation Centre in Shanghai will playa key role in bringing this innovation to life," Mr. Kent said. "We hold a long-term view of the China market, 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 plant and 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 build schools and libraries across China, or working with educators to construct technology and multimedia centers for Chinese schools, or partnering with Government authorities to promote environmental education, or the World Wildlife Fund to help conserve and protect China's precious water resources - we are firmly committed to a sustainable and prosperous future for all of China."

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 Executive Muhtar 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 a chilling 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 fruitjuice business globally. Coke had been trying to parlay its high-profile sponsorship of the Beijing Olympics last summer Into greater commercial 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 fastgrowing 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-based company's production and dlstrlbutlon might In the country. Coke also prized Hulyuan's upscale brand and saw opportunity for expansion. 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 were sold - a move that made it Impossible for Coke to justify the $2.4 billion price.

'V'Ie are disappointed," Mr. Kent said In a prepared statement, adding that the company respects Beijing's decision. He declined requests 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 at Jensen 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 to four 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 September had made the dears premium particularly rich. Huiyuan's market share in China slipped to 8.5% last year from 10.3% a year earlier. 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 said Wednesday that they respect the decision of the Ministry of Commerce (MOC) to reject Coca-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 for the time being," the group said in a statement to Xinhua. "Huiyuan will continue providing high-quality, safe and nutritious products to consumers. " The Coca-Cola Company said in a statement to media that, "We are disappointed, but we also 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 that Chinese 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 the statement. Huiyuan's shares on the Hong Kong stock market were down nearly 20 percent before being suspended Wednesday. According a joint announcement made by the Coca-Cola Company and Huiyuan at the Hong Kong stock exchanges, an application has been made to require the resumption of trading 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's bid 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 laws and regulations," found the transaction may disturb market competition. "If the acquisition ofHuiyuan went into effect, Coca-Cola was very likely to take a dominating position in the domestic market and the consumers may have to accept the high price 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 clear understanding of the acquisition during the application process, and that the company had been hoping to stimulate growth for the Huiyuan brand. Coca-Cola applied anti-trust investigation to the MOC in September. The MOC officially launched the investigation on Nov. 11 to determine whether the acquisition ofHuiyuan would harm 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 and suggested it to make changes in the acquisition document so that it would not disturb market competition. Coca Cola has not yet satisfied request. Experts said the decision to reject Coca Cola's acquisition will cost the world's largest soft drink maker the opportunity to increase its shares of China's juice market by more than 20 percent. The company saw its business in china grew 19 percent in 2008 and has listed China as its third largest market in the world. "We will now focus all of our energies and expertise on growing our existing brands and continuing to innovate with new brands, including in the juice segment," Kent said. Zhang Junsheng, an economics professor at the University ofIntemational Business and Economics said this decision aims to maintain competition and avoid potential hostile competition. "This move will help both domestic and overseas juice makers to compete fairly, and is good 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 Kong Kong dollars (2.3 billion U.S. dollars) in cash on Sept. 3.


Unaudited Six months ended 30 June 2008 2009 RMB000 RMB000 879,691 (659,028) 220,663 1,406 106 (319,781) (152,556) 332,386 82,224 (15,480) 66,744 66,744 1,294,440 (887,319) 407,121 35,440 971 (272,356) (79,036) 289,389 381,529 (14,188) 367,341 367,341

Note Revenue Cost of sales Gross prot Other income net Other gains Selling and marketing expenses Administrative expenses Finance income net Prot before income tax Income tax expense Prot for the period Total comprehensive income for the period Prot attributable to equity holders of the Company Total comprehensive income attributable to equity holders of the Company 5 7

6 7 7 8



66,744 RMB Cents per share

367,341 RMB Cents per share

(Losses)/earnings per share for prot attributable to the equity holders of the Company basic diluted Dividends

10 4.5 (16.9) 11 25.0 7.0


Audited Unaudited 30 June 2009 31 December 2008 RMB000 RMB000

Note ASSETS Non-current assets Property, plant and equipment Intangible assets Land use rights Long-term prepayment Deferred income tax assets Long-term receivable Total non-current assets Current assets Inventories Trade and other receivables Derivative nancial instruments Other loans and receivables Restricted cash Cash and cash equivalents Total current assets Total assets EQUITY Capital and reserves attributable to the Companys equity holders Share capital Share premium Other reserves Retained earnings Proposed dividend Others Total equity

3,253,674 467,591 426,072 23,365 11,860 4,182,562

3,102,455 317,262 429,080 148,583 31,070 4,028,450


853,273 516,311 60,000 37,051 968,085 2,434,720 6,617,282

760,560 643,666 882 356,786 94,355 1,306,621 3,162,870 7,191,320

114 3,716,982 144,175 776,095 4,637,366

114 3,716,982 139,298 22,235 709,351 4,587,980

Note LIABILITIES Non-current liabilities Borrowings Deferred government grants Long-term payable for land use rights Long-term payable for license fee Convertible bonds Total non-current liabilities Current liabilities Trade and other payables Taxation payable Deferred revenue Convertible bonds Borrowings Total current liabilities Total liabilities Total equity and liabilities Net current assets Total assets less current liabilities

Audited Unaudited 30 June 2009 31 December 2008 RMB000 RMB000


64,298 7,811 2,730 714,128 788,967

478,266 65,009 7,751 4,095 555,121



499,505 7,430 30,448 653,566 1,190,949 1,979,916 6,617,282 1,243,771 5,426,333

472,313 27,305 18,970 1,069,396 460,235 2,048,219 2,603,340 7,191,320 1,114,651 5,143,101