Caixin
Jul 29, 2019 07:42 PM
BUSINESS & TECH

Pepsi Sinks Its Teeth Into Chinese Health-Food Giant

#资料:五谷磨房PepsiCo will invest $131 million to acquire almost 26% of Shenzhen-based Natural Food International Holding Ltd. Photo: IC Photo
#资料:五谷磨房PepsiCo will invest $131 million to acquire almost 26% of Shenzhen-based Natural Food International Holding Ltd. Photo: IC Photo

PepsiCo Inc. has agreed to buy a nearly 26% stake in a Chinese health-food giant as the American conglomerate seeks to tap into rising middle class affluence in the world’s largest food and beverage market.

PepsiCo will invest HK$1.02 billion ($130 million) to acquire 566.5 million shares, or 25.8%, of Shenzhen-based Natural Food International Holding Ltd., becoming the Chinese company’s second-largest shareholder, according to Natural Food’s filing to the Hong Kong Stock Exchange on Friday. That price represents a premium of 6.1% on Natural Food’s average share price over the last 30 trading days.

PepsiCo said in a statement (link in Chinese) that the deal will accelerate its development in China as it cooperates with Natural Food in production, distribution, and promotion.

This is the soft-drink behemoth’s latest venture into more health-oriented or low-calorie products, as it seeks to adapt to changing consumer preferences. In 2016, PepsiCo said that by 2025 two-thirds of its soft drinks will have 100 calories or fewer from added sugar per 12-ounce serving, up from 40% at the time.

In May 2018, PepsiCo announced it was acquiring Bare Foods Co., an American fruit- and vegetable-based snack manufacturer. It also acquired the Israel-based SodaStream International Ltd., a manufacturer and distributer of home water carbonation devices, in a deal valued at around $3.3 billion last December.

According to advisory firm ASKCI Consulting, China’s health food industry was estimated to have revenue of 116.5 billion yuan ($16.9 billion) in 2018, up 13% year-on-year.

Founded in 2007, Natural Food largely focuses on grain-based nutrition powders and is China’s second-largest health food producer by sales, trailing Nanfang Black Sesame Group Co. Ltd., according to research firm Frost & Sullivan.

But despite the sector’s strong growth, Natural Food has had a tough few years, said industry analyst Zhu Danpeng, who said growth in demand for the kind of grain-based powder the company makes has slowed.

Natural Food booked 105.2 million yuan of profit last year, down 43.3% from 2017, according to the company’s financial report. Revenue reached 1.8 billion yuan last year, up 15.3%.

Several global food and beverage giants have expanded rapidly in China in recent years, but occasionally their expansions have been treated with caution.

Coca-Cola Co., PepsiCo’s largest rival, announced a $2.4 billion bid for Chinese juice producer China Huiyuan Juice Group Co. Ltd. in 2008. But the purchase was blocked the following year by China’s Ministry of Commerce over competition concerns.

Contact reporter Tang Ziyi (ziyitang@caixin.com)

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