Filed under: Deals, Coca-Cola (KO), PepsiCo (PEP)
The Coca-Cola Company (NYSE: KO) is, as Zac Bissonnette recently discussed, in the process of trying to buy juice-maker China Huiyuan Juice Group. He was a bit skeptical about this deal, wondering if it will truly add value to Coke’s operations. I’ve to admit, when I heard about this $2.5 billion bid, I wasn’t overly excited. I thought to myself, will this multibillion-dollar potential transaction be as exciting as the Glaceau purchase (Glaceau, of course, gave Coke access to the wonderful Vitamin Water brand)? Billions here and billions there do add up, and one has to make sure that such acquisitions don’t screw too badly with things like share repurchases and dividends.
Now comes word from the DealBook blog over at The New York Times that the transaction has a legal hurdle to go through. It doesn’t seem to give odds on the possibility of approval, but it says that this will be the first case presented under a new antitrust law put into effect by China a tiny over a month ago. Traders have sent shares of China Huiyuan Juice Group lower under speculation that the transaction isn’t a sure bet.
As a shareholder of Coke, I do have mixed feelings, but I’ve to say that I understand where management is coming from. Coke wants to grow, and China is definitely a country that large brands in America need to exploit. And juice categories are expanding as consumers step away from carbonated beverages in search of a healthier drink experience. Think about that arch rival PepsiCo, Inc. (NYSE: PEP) is looking at deals around the world all the time. Coke obviously wants to pick its spots carefully and see where it can do a transaction that makes sense before its number-one competitor does the same.
I think, once everything is added together and examined, Coke is doing the right thing here from a long-term perspective. If the beverage giant can gain a stronger presence in China, then it should hopefully help out in terms of offsetting the weakness that has been experienced in the North American marketplace. Now all that has to happen is for the deal to be approved. As the blog post cited expressed, there’s no exactly telling when a decision will come. I have a feeling it will go though. It’s always a difficult thing to launch a new brand in a foreign country, so taking over an already popular beverage entity might be worth the premium.
Disclosure: I own Coke; positions can change at any time.
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