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Swire Pacific Limited (HKSE: 00019/00087) ("Swire Pacific") today announced that its wholly owned subsidiary, Swire Beverages Holdings Limited ("SBHL"), has entered into a conditional master agreement with The Coca-Cola Company ("Coca-Cola") and a subsidiary of China Foods Limited ("China Foods") and will apply to submit a bid in an auction conducted in accordance with PRC law to acquire certain assets from the China Foods group. If the bid is successful and the conditions to which it and the master agreement are subject are satisfied, there will be a realignment of the Coca-Cola bottling system in Mainland China.
The realignment will be effected by transfers of equity interests in companies owned by the parties to the master agreement which are engaged in the manufacture, distribution and sale of non-alcoholic ready-to-drink beverages in Mainland China.
Under the realignment Coca-Cola will cease to be directly interested in bottling operations in Mainland China. This will leave subsidiaries of SBHL and China Foods with larger bottling operations in contiguous territories. This is expected to improve efficiency, result in savings in distribution and general and administrative costs and permit faster and better aligned decision making.
The non-alcoholic ready-to-drink market in Mainland China is sizeable. SBHL believes that it will continue to present attractive growth opportunities in the long term due to population growth, urbanisation and the relatively low consumption per capita in Mainland China when compared with developed markets.
SBHL has also agreed to acquire from a subsidiary of Coca-Cola the 12.5% interest in Swire Beverages Limited ("SBL") which is not already owned by SBHL. SBL is the holding company for the majority of Swire Pacific’s interests in companies engaged in the non-alcoholic ready-to-drink business in Mainland China and Hong Kong. The agreement is conditional on the realignment proceeding.
If the realignment proceeds, it will result in SBHL having controlling interests in companies operating in territories in which 49% of the Mainland China population live, and in which 51% of Coca-Cola beverages were consumed in Mainland China in 2015. The corresponding percentages before the realignment are 31% and 34% respectively. At present, SBHL has interests in franchise territories in Mainland China in Fujian, Anhui, Henan, Shaanxi, Guangdong, Zhejiang and Jiangsu. SBHL will take on franchise territories in Hubei, Guangxi, Yunnan, Jiangxi, Hainan and Shanghai and the cities of Zhanjiang and Maoming in Guangdong, and will increase its interests in franchise territories in Jiangsu, Zhejiang, Anhui, Fujian, Henan and Guangdong. The Shaanxi territory will be transferred to a subsidiary of China Foods.
The net amount expected to be payable by SBHL in respect of the realignment and the acquisition of 12.5% of SBL is RMB5,869 million, subject to completion adjustments.
Pat Healy, Managing Director of Swire Beverages, said: "We are delighted to be expanding our partnership with The Coca-Cola Company and excited by the enormous long-term growth potential of Mainland China, Coca-Cola’s third-largest market by volume. Swire Beverages has invested in building a world-class bottling system in Mainland China over the past 27 years and we are confident that we can leverage that bottling system over an enlarged franchise territory. Overall, this realignment will strengthen our beverages business in Mainland China, help us to capture the opportunities that this dynamic market has to offer and open up further growth pathways for Swire Beverages."
Mr Healy added: "This realignment will create a more efficient Coca-Cola bottling infrastructure in Mainland China. It will also significantly expand the scale of operations under our control. In tandem with our current expansion of franchise territories in the USA, this realignment is part of a broader strategy to expand the global scale, volume and revenues of our beverages business."
John Slosar, Chairman of Swire Pacific, said: "Swire Beverages has been a strategic partner with Coca-Cola for over 50 years. Today we are one of the largest Coca-Cola bottlers in the world, with significant franchise territories in Mainland China, the USA, Hong Kong and Taiwan. This realignment is testament to our commitment to our long-term strategic relationship with The Coca-Cola Company. We look forward to working with Coca-Cola to continue to strengthen the bottling system in Mainland China and in doing so to create long-term value for our shareholders."
About Swire Beverages
Swire Beverages is a division of Swire Pacific Limited. The division has the exclusive right to manufacture, market and distribute products of The Coca-Cola Company in Hong Kong, Taiwan, seven provinces in Mainland China and an extensive area of the mid-western USA. The relationship with Coca-Cola began in 1965, with the acquisition by Swire of the majority shareholding in the Hong Kong bottling company. Swire Beverages manufactures 58 beverage brands and distributes them to a franchise population of over 460 million people.
Visit Swire Pacific's website at www.swirepacific.com.