COFCO’s Proposed Acquisition of Huiyuan
Abstract
In our presentation, our group plans to select the Huiyuan Juice as the acquiree and the China National Cereals, Oils and Foodstuffs Corporation(COFCO) as the acquirer. Huiyuan Juice is the largest privately owned juice producer in China. Meanwhile, it also participates in the manufacture and sales of juice and other beverage products. Its products include fruit juice and vegetable juice, nectars, bottled water, tea, and dairy drinks. In the Chinese domestic market of juice, Huiyuan Juice occupies about 56% market shares in 2013. During the past year, the total revenue is about 4.5 billion RMB with 13.1% annual growth rate and the gross profit is 1.4 billion with 25.4 annual growth rate. COFCO Group is China's largest food processing, manufacturer and trader. It is one of the top 500 enterprises chosen by US's Fortune Magazine. Our group believes that this acquisition will be beneficial to both Huiyuan Juice and COFCO Group.
Company Background
Huiyuan Company
Huiyuan was established in 1992, and it is the main modern enterprise of fruit and vegetable juice in China. It has more than 500 kinds of food and drink. According to research, Huiyuan accounted for 46% of the market share in pure fruit juice, and occupy 39.8% of the high concentration juice market share. Meanwhile, some particular products are exported to the more than 30 countries and regions, such as United States, Japan and Australia. Huiyuan Group has been pursuing ”nutrition public benefit agriculture," it has more than 20 modern factories, and over 200,000 Ha of Orchard. Huiyuan Group also has 70 the most advanced production lines and produced 500 kinds of food and drink.
In one word, Huiyuan juice industry has become China's first brand and was awarded "China Famous Trademark".
COFCO Corporation
COFCO Corporation is a Fortune 500 company, China's leading agricultural and food areas of diversified products and services provider, which is committed to building the whole full-service chain from field to table. Facing the development trend of world economic integration, COFCO continues to strengthen the cooperation with global business partners in agricultural products, foodstuff, tomato fruits and vegetables, beverages, wine, sugar, feed, meat and biomass energy, hotel real estate, finance and other areas of extensive cooperation.
It will benefit as follows:
(1) Firstly, the systematic product line is beneficial for development and promotion of business, distributors, end, and the consumer, which is conducive to long-term development of the competitive environment in harsh conditions.
(2) Secondly, Huiyuan’s specialized production is one big advantage and Huiyuan has been committed to the professional route to cover many kinds of fruit juice. Huiyuan has the longest, most diversified product line, and there are 200 kinds of single product, more than any other juice companies, covering peach juice, orange juice, plum juice and so on.. These are mainly attributed to the specialized production equipment and advanced integration, which is one of the reasons for staying ahead of the industry.
(3) Thirdly, Huiyuan Juice has a professional capability of R&D, which can provide good technical support for its development, and also ensure that they make better products.
Risks include the following points:
(1) First, it has some problems shown in the semi-annual report in 2008: the company's gross margin is only ¥3,915 million, which is declined by 22% compared with ¥5,033 million in last year; there is a fall of 72% in earnings per share for the company from ¥0.25 to ¥0.07; the company's revenue in the first half year of 2008 is reduced by 5.2%. Meanwhile, the company's cost of sales increased by HK $40 million more than last year, among which inventory expenses increased by HK $13,460,000. In the last fiscal year, Huiyuan lost three sales regions, including Sichuan and Guizhou.
(2) Second
