Sat, Nov 05, 2011 - Page 11 News List

PepsiCo China in Tingyi share swap

Bloomberg

PepsiCo Inc is to swap its bottling operations in China for a stake in Tingyi (Cayman Islands) Holding Corp’s (康師傅控股) beverage business, two people with knowledge of the matter said.

The transaction would create a business comprising PepsiCo’s stakes in more than 20 local bottling ventures and Tingyi’s beverage operations, said the people, declining to be identified before an announcement is made.

PepsiCo would initially own a minority stake in the venture, with an option to increase its holding over time, they said.

Calls to the mobile phones of PepsiCo spokesmen Peter Land and Jeff Dahncke outside regular business hours were not answered. Tingyi chief financial officer Frank Lin (林清棠) did not pick up calls to his mobile phone seeking comment.

“Pepsi is not doing well on distribution in China, on which Coke performs better,” said Christina Lie, an analyst at First Shanghai Securities (第一上海證券) in Hong Kong. “Pepsi may benefit from Tingyi’s distribution capacity.”

PepsiCo has been investing to expand its operations in the world’s most populous nation in an effort to win market share from Coca-Cola Co. New York-based PepsiCo plans to invest US$2.5 billion in China in the food and beverage businesses over a three-year period, including in manufacturing plants and research, it said in May last year.

Tingyi, the maker of Master Kong noodles, shares halted trading in Hong Kong yesterday pending a “notifiable transaction.” Its Taiwan depository receipts were also suspended.

There was to be a signing ceremony for the transaction in Shanghai yesterday, a Tingyi executive said, declining to be identified because the news had not been announced.

Tianjin-based Tingyi had said it would release a statement on the Taiwan and Hong Kong stock exchanges after 4pm yesterday, the person said.

The share swap would allow PepsiCo to gain greater access to China’s market through Tingyi’s distribution and supply chains, and win a share of the Chinese company’s non-carbonated drinks business, the two people with knowledge of the matter said.

It would see Tingyi manufacture and distribute all carbonated beverages for PepsiCo, giving the Chinese company the exclusivity to manage the US soda maker’s bottling business in the country, they said.

Tingyi would benefit from the transaction by expanding its product range. The company, already a leader in the Chinese market for instant noodles, ready-to-drink tea and bottled water, does not have many soft-drink products, Lie said.

PepsiCo’s drinks brands include Seven-Up and Tropicana, and its food products include Cheetos, Lays potato chips and Quaker cereals.

The soft-drink market, a category that includes carbonates, fruit and vegetable juice, ready-to-drink tea and bottled water, is worth 332.7 billion yuan (US$52 billion) in China, according to London--based researcher Euromonitor International.

Coca-Cola is the dominant soda maker in China with a 16.8 percent share of the soft-drink market last year, according to Euromonitor. Tingyi ranked second with 14.4 percent, Hangzhou Wahaha Group Co was third with 7.2 percent and -PepsiCo was at No. 4 with 5.5 percent, data showed.

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