Coke Acquires Chinese Maker of Multigrain Drinks

Coke Acquires Chinese Maker of Multigrain Drinks

Deal for China Culiangwang drinks operation comes at a time of slowing sales for the 

soda maker in China

By Prudence Ho in Hong Kong and Mike Esterl in Atlanta and published by the Wall Street Journal

Coca-Cola Co. agreed to buy a Chinese drinks business, its first attempt to buy a mainland firm after a high-profile rejection by Beijing of its bid for a maker of juices and nectars six years ago.

The Atlanta beverage giant is buying the beverage business of China Culiangwang Beverages Holdings Ltd. for an enterprise value, which includes debt, of $400.5 million, the companies said Friday. Culiangwang specializes in “multigrain beverages” with flavors such as red bean, walnut and oats.

Coke has been acquiring makers of juice, tea and other noncarbonated drinks around the world in recent years to broaden its portfolio and jump-start slowing sales. Many still-beverage categories are growing faster than soda, which represents about 70% of Coke’s sales. Last year, company volumes rose just 2%, the second straight year Coke fell short of its growth target.

China remains a key growth market for Coke, which has 43 plants in the country after investing billions of dollars in recent years. But its sales in China also have slowed after several years of double-digit growth. Coke’s China volumes rose just 4% last year, including a 3% decline in the fourth quarter.

“The proposed acquisition is in line with Coca-Cola China’s strategy to continue providing a diverse range of beverage products to Chinese consumers with plant-based protein drinks representing a growing beverage category in China,” Coke said.

Coke’s attempt to bulk up in China through a $2.4 billion bid for juice maker China Huiyuan Juice Group Ltd in 2009 was turned down by China’s Ministry of Commerce on antitrust grounds. The Huiyuan deal would have been the largest takeover by a foreign company of a Chinese food or beverage maker.

The deal to buy China Culiangwang’s multigrain drinks operations is also subject to approval by the Ministry of Commerce.

A Coke spokesman declined to comment on whether the company expects the deal to be approved, but noted it is much smaller than the blocked Huiyuan acquisition. Coke also doesn’t have a multigrain business in China, but it is a big juice player.

Many U.S. companies lately have been selling Chinese assets—not buying them. Much of the deal activity also has involved technology companies rather than consumer staples. As reported earlier in the week, China’s Tsinghua Unigroup Ltd. is in talks to buy a controlling stake in Hewlett-Packard Co.’s China data-networking operations that could value the subsidiary at as much as $5 billion.

PepsiCo Inc., Coke’s chief multinational rival, sold its China bottling operations in 2012 to a beverage joint venture including Tingyi (Cayman Islands) Holding Corp. and Asahi Group Holdings Ltd. in order to expand its production and distribution. It has also been investing in its local snack business, part of its goal to become the largest food-and-beverage company in China.

China Culiangwang said it expects to book a gain of 1.12 billion yuan ($181 million) from the disposal and will use the net proceeds to repay the outstanding bonds and other debt. The company, whose market capitalization is $231 million, has seen its shares soar 112% this year.

Drinks like China Culiangwang’s multigrain beverages, branded as health drinks, sell well in the country. China Culiangwang’s multigrain beverage business’s unaudited net profit on a pro forma basis was 193 million yuan in 2014, up 17% from 164.9 million yuan in 2013, it said in a regulatory filing. Apart from multigrain beverages, China Culiangwang sells snacks, biscuits and cereals.

Coke had a 63% share of China’s $9.01 billion retail market for carbonated soft drinks last year, but the country’s soda-industry sales have averaged only 5.2% annual growth since 2009, according to market researcher Euromonitor. Overall nonalcoholic beverage sales in China have averaged 14% annual growth over the same period, reaching $73.32 billion last year.

Coke has been making lots of small bets and striking partnerships in recent years to diversify into faster-growing beverage categories rather than pulling the trigger on large takeovers. Last year it agreed to pay about $4 billion combined to buy minority stakes in U.S. energy drink maker Monster Beverage Corp. and U.S. coffee-machine maker Keurig Green Mountain Inc.

Its biggest recent overseas deal was in 2012, when it paid roughly $980 million to acquire about half of Aujan Industries, a large still-beverage company in the Middle East. Last year it teamed up with bottling partner Arca Continental to acquire the majority of Tonicorp, a dairy company in Ecuador, for an undisclosed amount.

Coke has plenty of money parked overseas for more acquisitions. Of $21.68 billion in cash, cash equivalents, short-term investments and marketable securities at the end of December, $19.5 billion was held by foreign subsidiaries. Making more acquisitions in the U.S. is trickier, though, because Coke would likely face a big tax bill if it repatriates overseas earnings.

—Chester Yung and Rick Carew in Hong Kong contributed to this article.