Huiyuan shares dip on acquisition uncertainties
Updated: 2008-09-05 07:02
By Lillian Liu(HK Edition)
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China Huiyuan Juice Group fell by 7.68 percent in Hong Kong trading yesterday on worries the Coca-Cola Co's $2.4 billion acquisition bid will not get regulators' approval.
The central government became quite discreet about foreign acquisitions of domestic consumer brands since 2004 when high-profile foreign acquisitions caught the attention of not only lawmakers but also the general public, analysts warned.
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Coca-Cola's takeover deal of Huiyuan Juice is still confronted with many difficulties. The unclear outlook triggered a drop in Huiyuan's share price yesterday. AP |
Shares in Huiyuan, China's biggest fruit and vegetable juice company by market share, closed yesterday's trading at HK$10.10, below Coca-Cola's offer price of HK$12.20. The stock soared 164 percent Wednesday after the US giant and Huiyuan announced the offer.
"The government does not want to see monopoly by any single market player, and approval of this deal will trigger more large-scale acquisitions and the regulator will feel uneasy if a large amount of the country's assets were controlled by foreigners," said Linus Yip, a strategist at First Shanghai Securities.
Huiyuan is the biggest fruit and vegetable juice producer with a market share of 10.3 percent, followed by Coca-Cola's 9.7 percent, according to Euromonitor.
The Beijing-based company had a share of 42.6 percent of the 100 percent pure juice market last year, Huiyuan said in March this year.
"We believe it would be risky if the government granted its approval for the deal," JPMorgan said in a research note.
"With Huiyuan's access to the sizable domestic juice concentrate base, Coca-Cola would dominate the mainland's juice market," said Selina Sia, an analyst at JPMorgan.
How long it will take before the government reaches a decision is also under intense speculation.
"The regulator will take a long time investigating the deal; the procedure of the approval will be time-consuming and onerous," said Ben Kwong, head of research at KGI Asia.
Mei Xinyu, a researcher at the Chinese Academy of International Trade and Economic Cooperation, said: "the approval of the acquisition faces many difficulties."
However, if approved, Huiyuan will be able to borrow all the experience and strategies in sales and marketing from the US soft drinks company.
"The immediate help from Coca-Cola will be a boost in the share prices of Huiyuan," First Shanghai's Yip said. "The acquisition will also encourage other beverage companies on the mainland to consolidate their market shares, improve the sales and profit margin to attract foreign investors."
The beverage giant's offer amounts to HK$12.20 a share for Hong Kong-listed Huiyuan, nearly tripling Huiyuan's trading price on Aug 29, before trading in its shares was halted Monday pending the news.
The offering price was fairly good so, if approved, the acquisition will also indicate a good bidding price range for foreign companies that want to purchase mainland companies in the future, Yip said.
The offer also demonstrates foreign companies' strong interest in tapping the mainland market, he said.
(HK Edition 09/05/2008 page3)