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Failed Coke-Huiyuan deal a lesson to learn

(chinadaily.com.cn)
Updated: 2009-04-03 16:26

The Coke-Huiyuan Story

Zhu Xinli, Huiyuan's founder and president, is perhaps the biggest loser from the affair. Zhu owns 42 percent of the company, and stood to make HK$7.4 billion (954.83 million). He has taken Huiyuan from being a local Shandong concern to a new base in Beijing, and onto the Hong Kong stock exchange in 2007. Huiyuan now controls over 10 percent of the fruit and vegetable juice market, and 40 percent of the pure juice sector.

The Chinese entrepreneur has managed his company with the objective of selling it, comparing Huiyuan to a girl raised to be married off. "Too early is not mature enough," he once said of his progeny. "Too late, and she is too old. Choosing the right time to join forces is most important for Huiyuan." In the past, Huiyuan has struck up relationships of varying lengths with other companies, including Delong, Tong Yi and French Danone Group, which owns 21 percent of the company.

But for Zhu, the Coke deal was "the one that got away." If approved, his plan was to concentrate on upstream activities such as the fruit plantations and package box manufacturing that are Huiyuan's crown jewels. (Only the listed Huiyuan Juice was for sale: the orchard farms, fruit processing and other upstream business units were not part of the deal.)

Stocks in Huiyuan dropped 40 percent the day after the decision was announced, but even before that there were signs of trouble. Some observers think Huiyuan's focus on expanding capacity was a strategic error: Profit margins shrank in the first half of 2008 (though profits grew 7.1 percent over the whole year). While Huiyuan blamed this on inflation in raw materials in the first half of 2008, ineffective marketing and a stagnant product range may have taken their toll, as the 21st Century Business Herald has reported. Luo Lei, of Guo Tai Jun An Securities, told Caijing Magazine that the company's marketing skills are "not so excellent." Partly, the sale to Coke appears to have been designed to correct this.

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