M&A

Losing its fizz

A decade after Coke deal fell through, Huiyuan Juice finds another buyer

Zhu-Xinli-w

Zhu Xinli: ceding control?

What do China’s “second most famous butcher” and Coca-Cola have in common? Not much, in truth. But butcher boss Chen Sheng (see WiC220) is about to achieve something that the American beverage giant couldn’t: taking over China’s leading juice brand Huiyuan, and at about a quarter of the price Coke offered a decade ago.

In March 2009 the Chinese government blocked Coke’s $2.4 billion cash offer for Huiyuan Juice. The ruling resulted from newly enacted competition laws, although it also fed from hostile sentiment towards the sale of an iconic national brand to an American firm.

The ban was a blow to Huiyuan’s founder Zhu Xinli, who was pushing for a deal valued at three times Huiyuan’s market cap and 70 times its 2007 earnings. Still, he seemed to take the decision in his stride, greeting the news with the bold decision, that Huiyuan would expand into carbonated beverages and take on Coca-Cola in its core market.

“If people really don’t want a national brand to fall to the Americans, from now on they should drink a lot of Huiyuan,” he reasoned at the time.

To Zhu’s disappointment, they haven’t been as patriotic when it comes to picking their drinks. Huiyuan’s foray into carbonated drinks has been costly for shareholders. Its net profits dwindled from Rmb233 million ($33.72 million) in 2009 to Rmb13 million in 2016, while its total liabilities surged from Rmb2.3 billion to nearly Rmb10 billion during the same period.

In a further display of its parlous state Huiyuan hasn’t published its financial statements since 2016 – the year that Hong Kong regulators first began to look into corporate governance issues related to loan arrangements made with Zhu.

Before its shares were suspended from trading last April, Huiyuan’s market value had sunk to HK$5.3 billion ($680 million).

“It is a big pity to see China’s number one juice brand fall so low. Over the past 10 years Huiyuan’s decisions have benefited no one else but its biggest shareholder [Zhu],” an analyst complained on Golden Alpha, a platform for independent equity research.

The claim is that Zhu has drawn down much of Huiyuan’s cash through connected transactions since 2013 – particularly a deal in which the company bought an asset from its founder in which 60% of the value was assigned to goodwill. (The firm’s independent directors resigned and auditors have refused to sign off the accounts.)

Huiyuan was back in the spotlight this month after it secured a deal that will see Zhu cede control. In a stock exchange circular, it announced that it will form a joint venture with Tiandi No.1 (or Tiandi Yihao), a maker of apple cider vinegar, which is listed on Beijing’s over-the-counter New Third Board. Tiandi will pay Rmb3.6 billion in cash for a 60% stake in the JV, while Huiyuan will contribute Rmb2.4 billion in the form of assets, including its brand.

Tiandi No.1 was founded by Chen Sheng, who is better known for his pig farming empire. At best, it is a regional player in beverages, largely focused on Guangdong, where its fruit vinegar drinks are popular. It now plans to leverage the sales networks and brand power of Huiyuan, arguably still the most well-known juice brand in China, as it rolls out a more national campaign.

Together, Huiyuan and Tiandi No.1 will refocus on the fruit and vegetable juice markets, although there is speculation that their new venture could also benefit from the nationalistic sentiment stirred by the worsening trade war with the US. There are already murmurs on social media that Chinese consumers should boycott American goods such as Coke, for instance.

Given that Zhu’s original sale of Huiyuan to Coke was thwarted by anti-US feeling, it would be something of a paradox if Washington’s tariffs had a hand in helping his juice firm revive the sales of its heyday.


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