American soft drinks major Coca-Cola has announced the purchase of a plant-based drinks business in China. Under the deal, Coke will pay US$400 million [$514 million] in cash to Xiamen Culiangwang Beverage Technology Company, based in Xiamen, Fujian province.
“The proposed acquisition is in line with Coca-Cola China’s strategy to provide a diverse range of beverage products to Chinese consumers with plantbased protein drinks representing a growing beverage category in China,” the U.S. beverage giant said in a statement, reports Reuters.
The Chinese company’s top-selling products are green bean, red bean and walnut variants of plant-based protein drinks marketed under the brand name China Green Culiangwang. It is owned by Hong Kong-listed China Culiangwang Beverages Holdings.
The market for plant-based protein drinks is growing in China at the rate of 18 percent a year since 2008, according to a report by Mintel Group Ltd. Many Chinese are lactose intolerant and see protein drinks as healthier alternatives to milk. Milk safety is also a major issue in China especially after locally made melamine-contaminated milk powder killed many infants in 2008. The acquisition also marks Coca-Cola’s foray beyond carbonated beverages and bottled water into areas like coffee and energy drinks. However, in 2009, Coke had to beat a retreat when Chinese authorities blocked its plan to buy Huiyuan Juice.
So the deal marks Coke’s first successful takeover in China after the Huiyuan debacle. Post-takeover, China Culiangwang will focus on developing its consumer products business, the company said in a stock exchange statement. The deal will now go to the approval of Chinese antitrust authorities.
Paying A Premium
In the China deal, Coke is paying a premium to Culiangwang’s market value of US$230 million. For one thing Xiamen Culiangwang deal brings a slew of benefits to Coke. On the one hand, it helps Coca-Cola capitalise on the surging popularity of plant-based protein drinks as consumers are moving away from milk. Secondly, it gives the American giant an opportunity to reinvigorate overseas sales after a slowdown.
Cokes’ earnings had U.S. sales at the top with no solid contribution from international sales. For Coke, the Chinese market is not a big growth market as Coca-Cola brand beverage had a growth of only 3 percent in the last quarter. It is expected that Xiamen Culiangwang deal would add more cheer to Coke as it will enhance its appeal to the local consumers.
By Kalyan Kumar