Apologies in advance for coming at this story from a Russian bent, but Moscow's my old stomping grounds, and I don't know peanuts about Beijing. So before getting to the news of Coke's latest $2.4 billion China investment, announced yesterday, let me create a frame of reference for you.
To China by way of Russia
Three years ago on these pages, I regaled you with the story of Coca-Cola's (NYSE:KO) purchase of Russia's second-largest juice maker, Multon. The soda pop giant shelled out $500 million to instantly capture 25% market share and a $330 million annual revenue stream.
Two years later, we discussed PepsiCo's (NYSE:PEP) countermove, when it spent $700 million for Ukrainian juice magnate Sandora and its $200 million in annual sales. Several months later, Pepsi and little brother Pepsi Bottling (NYSE:PBG) leapfrogged Coke in Russia proper, buying its biggest juice maker -- Lebedyansky -- for about $2 billion, against $800 million in annual sales. Crunching the numbers, we found:
- Coke anteing up 1.5 times sales for Multon.
- Pepsi paying 3.5 times sales for Sandora, and 2.5 times for Lebedyansky.
Back then, I argued repeatedly that the valuations that Coke and Pepsi were paying looked pricey in light of the 1 times valuation that Russia's Wimm-Bill-Dann (NYSE:WBD) commanded just four short years ago. But -- join me in the present, if you will -- Coke's latest purchase makes Russia look like a bargain.
Russia ain't China, and rubles ain't renminbi
In yesterday's press release, Coke announced that it will shell out $2.4 billion to acquire Hong Kong-listed China Huiyuan Juice Group Limited (CHJ). According to Capital IQ, CHJ booked just under $390 million in sales last year. The resulting valuation works out to a stunning 6.2 times sales -- more akin to the P/S ratios accorded China's hot growth Internet titans NetEase (NASDAQ:NTES), SINA (NASDAQ:SINA), and Sohu (NASDAQ:SOHU), than to what you'd expect out of a boring ol' juice maker.
Foolish takeaway
Now, in Coke's defense, CHJ does control some 43% of China's pure-juice market. Also, its sales compounded at 38% over the past two years, as profits grew even faster. So Coke isn't exactly buying a lagging player here.
Rather, Coke's getting something more like what Pepsi bought in Ukraine and Russia: a top dog and first-mover. You'd expect Coke to pay a premium for that. But twice the valuation of the Slavic juice giants? Seems to me, somebody may have spiked Coke's punch when it negotiated this deal.
To learn about the Russian antics of the world's top beverage companies, read:
