The Coca-Cola Co (NYSE:KO) agreed to purchase a Chinese drinks business. It is the company’s first attempt to acquire a mainland company after a denial by Beijing of its bid for a manufacturer of nectars and juices six years ago. The deal comes at a time of slowing sales in China.
The Coca-Cola is acquiring the drinks operations of China Culiangwang Beverages Holdings Ltd. The deal is expected to finalize for an enterprise value, including debt, of $400.5 million. Culiangwang is a mainland firm that specializes in “multigrain beverages” with flavors like walnut, red bean and oats.
The declining sales
The company has been purchasing makers of tea, juice and other noncarbonated drinks across the world in past few years to extend its portfolio and boost declining sales. There are many still-beverage categories that are doing better than soda. They contribute for 70% of The Coca-Cola sales. In 2014, the company recorded volume growth of merely 2%, the second consecutive year when Coke failed to meet its growth target.
China remains a significant growth market for The Coca-Cola Co (NYSE:KO), which has 43 plants in the nation after making huge investment in recent years. However, its sales in China have declined after years of double-digit growth. The company recorded China volume growth of just 4% in 2014, including a 3% drop in the fourth quarter.
The Coca-Cola management said that the proposed deal is in line with the company’s plan to continue offering a diverse range of drinks to Chinese customers with plant-based protein drinks. It will support the company sales in China. The company’s attempt to expand in China by acquiring China Huiyuan Juice Group Ltd for $2.4 billion in 2009 was rejected by China’s Ministry of Commerce. The proposed deal to acquire China Culiangwang’s drinks operations is subject to approval by the China’s Ministry of Commerce.