Coke Deal In China

330 Words2 Pages
Coca-Cola is planning to expand its operation in the Chinese market and announce to buy Hong Kong listed Huiyuan Juice Group for $2.5 billion. Coca-cola will add three shareholders owning a total of 66% in Huiyuan. Huiyuan Juice is a long-established and successful brand, and has about 80% of pure juice market in China. They expect the demand for concentrated juices will increase with rising income and healthier life styles in China. If the deal approved by regulator, it would be the largest takeover in China. I personally don’t think it’s a great deal for Coca-Cola based on analysis: • Coca-cola is offering $1.6 per share to Huiyuan, which is three times higher than Huiyuan’s market value in Hong Kong stock exchange. The deal values the company at more than 45 times Huiyuan’s 2008 earnings estimates, according to Thomson Financial. The deal could cut coca-Cola’s earnings by 3 to 4 cents a share in the first year before boosting although Chinese market still remain unstable because of tainted food scandals and political unstableness. • The deal could even get more complicated since it’s the biggest takeover in China. There is risk that the Chinese government will not approve it because of anti-monopoly law. Chinese nationalists and anti-American are afraid Coca-Cola will control majority of drink product distribution network in China after the deal, and will threat domestic business. And that’s the thing Chinese people never want to happen because of national pride. The process of deal might take really long time or even get worse. Doing business in China is very different in western world. Sensitivity of Chinese nationalism has big part of it when we make any business decision. Relationship often comes before the profit. If Coca-Cola knows how to play this game, they might get much cheaper price to buyout Huiyuan and also not to afraid of anti-monopoly
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