HEFTY PRICE: Coca-Cola has offered to purchase Huiyuan Juice Group,
whose headquarters are pictured above, for $2.4 billion.
The deal is subject to the approval of Chinese regulators

Huiyuan posted net profit of 367.3 million yuan ($54 million) in the first half of the year, an increase of only 7.2 percent. In 2007, the company's net profit nearly tripled. But this year has come under pressure from mounting raw material costs due to severe winter snowstorms and the May earthquake as well as soaring distribution network maintenance fees. As a result, it laid off 2,592 employees in the first half of this year, of which 1,406 were salespeople.

Both Coca-Cola and Huiyuan anticipate that the deal would create synergies between Huiyuan's production capabilities and Coca-Cola's distribution and raw material purchasing capabilities, leading to operational and cost efficiencies. The Chinese firm is expanding its production capabilities to tap the country's fast-growing juice market.

Obstacles

The $2.4-billion deal would be the largest foreign takeover of a local firm in China and the second largest acquisition in Coca-Cola's history, next to its purchase of specialist water and energy drinks maker Energy Brands, Inc., known as Glaceau, for $4.1 billion last year.

The acquisition is subject to anti-monopoly review in China, because the combined global turnover of the two companies was more than 10 billion yuan ($1.5 billion) last year, and they each had revenue of more than 400 million yuan ($59 million) in China in 2007.

Yao Shenhong, the Ministry of Commerce spokesman, told Xinhua News Agency earlier this month that the ministry would review the deal and it was "against monopolies while supporting normal economic activities."

Local beverage companies are worried that if the deal goes through, it would give Coca-Cola more than 60 percent of China's domestic juice market via Huiyuan's established sales and distribution networks.

According to a Beijing Morning Post report, the Ministry of Commerce soon will hold a hearing on Coke's bid for Huiyuan, during which domestic juice producers will jointly submit their three alternative plans for Huiyuan. Their first recommendation is for a group of local companies to buy Huiyuan. Another option is to split the brand from Huiyuan's assets, auction the brand to local companies and sell the assets to Coca-Cola. A third option is to establish a Chinese investment fund to make a counter offer for Huiyuan.