Wahaha Hunts for Global Deals on More China Competition

Hangzhou Wahaha Group Co., the beverage business owned by China’s richest man, is hunting for global acquisitions to build an overseas distribution network as economic growth slows and competition heats up at home.

The company is working with investment banks to identify food and beverage deals in Europe and Australia, Kelly Zong, head of international business and daughter of billionaire owner Zong Qinghou, said in a Sept. 11 interview. It is interested in companies that can help it source raw materials more efficiently and share distribution systems, she said.

In pursuing global deals, closely-held Wahaha follows Shanghai-based Bright Food Group Co. which agreed in May to buy a stake in U.K. cereal maker, Weetabix Ltd. Wahaha gets almost all its revenue from China, where economic growth is slowing and cost pressures are rising.

“The competition within the food and beverages sector in China remains pretty intense,” said Olive Xia, a Shanghai-based analyst at Core Pacific-Yamaichi International Ltd. “If Wahaha wants to leapfrog bigger rivals such as Tingyi, Uni-President, or Coca-Cola, it may need to rely on making overseas acquisitions.”

Wahaha reported a profit of $1 billion on $11 billion in sales last year. Its overseas drinks business, which sells tea products in South Korea and the U.K., generated about $20 million of annual sales last year, according to Zong.

Larger Competitors

By contrast, Tingyi (Cayman Islands) Holding Corp., which last year entered into a deal to become PepsiCo Inc.’s China bottler, had 2011 sales of $7.9 billion, according to data compiled by Bloomberg. Uni-President China Holdings Ltd., which sells both food and drinks, had 2011 sales of $2.6 billion.

“Acquisitions are a step we must take if we want to become a global company because it’s a fast track,” Zong said during the interview at a World Economic Forum conference in Tianjin, China. Her father founded the company 25 years ago with a $22,048 loan.

The company’s profits have helped boost the fortunes of founder Zong Qinghou, who owns more than 80 percent of Wahaha and is the 22nd richest man in the world with a net worth of $22.6 billion, according to the Bloomberg Billionaires Index.

The company may boost net income to $1.6 billion in 2012 on sales of $13.4 billion, bolstered by the Chinese government’s push to boost domestic consumption, he said in a March interview.

‘Tremendous Opportunities’

Wahaha, based in Hangzhou in eastern China, makes soda, food, baby formula and children’s apparel in its 60 factories located in 29 provinces across China. It wants to sell more nutrition drinks and sees “tremendous opportunities” in selling its tea brands overseas, Zong, the daughter, said in the interview.

An overseas deal “could help the company to improve quality control, brand image and even securing the supply of raw materials,” said Xia, the analyst at Core Pacific-Yamaichi.

Bright Food in May agreed to buy a 60 percent stake in Weetabix from private equity firm Lion Capital LLP in a deal that valued the cereal company at 1.2 billion pounds ($1.9 billion).

That is the largest of 20 food and beverage acquisitions worth $2.74 billion that Chinese firms have announced over the last three years in Europe, North America and developed Asia Pacific markets, according to data compiled by Bloomberg.

Wahaha is looking overseas as growth slows in the world’s second-largest economy, which expanded 7.6 percent in the second quarter from a year earlier, the slowest pace in three years. Inflation in China accelerated for the first time in five months in August, according to government data.

Government policies designed to boost domestic demand, including wider medical insurance plans, will shore up business, Zong said. “For the long term, I think we’ll still have very good growth because we have a large population in China.”

— With assistance by Michael Wei, and Vinicy Chan

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