Master Kong's “marriage” intensifies the change in the market structure of Pepsi Cola drinks

The cooperation between Master Kong and PepsiCo finally surfaced on November 4th. However, contrary to the preaching of Master Kong’s “merger and acquisition” of PepsiCo China, Master Kong only became a “franchising bottler” for PepsiCo China, according to Master Kong. They say that they are "building strategic alliances in China."

Just equity swap

Master Kong’s spokesperson Chen Gongru said in an interview with the “China Enterprise News” reporter: “The cooperation between the two parties is not an acquisition relationship. It is only a share swap, and the change is only equity, and it will not change the market.”

On November 4th, Master Kong Holdings Limited announced that it will form a strategic alliance with PepsiCo China. Tingyi's direct interest in the wholly-owned subsidiary Master Kong Beverages 5%, “recovers all the proceeds of the Pepsi-Cola China non-alcoholic beverage bottling business,” and Master Kong Beverage became the “Franchise Bottling Company” of PepsiCo in China.

According to the information provided by the Master to a reporter from the China Enterprise News, Pepsi's current beverage business in China operates through 24 wholly-owned and joint venture bottling companies. After the alliance is approved, Pepsi will transfer its indirect shareholding in the bottling plant to Master Drinks, which will result in a 5% indirect shareholding in Master Drinks. As China is expected to become the world's largest beverage market, Pepsi will also have the right to decide to increase its indirect shareholding in Master Kong beverages to 20% by 2015.

Chen Gongru explained that the cooperation between the two parties is at a strategic level. Master Kong Holdings and PepsiCo have established strategic alliances in China. Specific transactions and cooperation involve the subsidiaries of the two companies, namely Master Kong Beverage and Pepsi China's non-alcoholic beverage bottling business. .

"The only possible change is that consumers will see Master Kong's logo when they drink Pepsi. Consumers can understand that the drink Pepsi was produced by Master Kong or the original partner of Master Kong and PepsiCo," said Chen Gongru.

According to statistics, as of June 30 this year, the unaudited consolidated net asset value of Master Kong Beverages Holdings Group was approximately US$1.1 billion. According to the 5% projection of face value, PepsiCo China’s share swap will receive a book value of approximately US$55 million.

According to the new alliance, Master Kong Beverages will cooperate with Pepsi's existing bottling plant in China and will be responsible for the production, sales and distribution of PepsiCo's carbonated beverages and Gatorade branded products. PepsiCo will continue to own the brand and be responsible for its marketing activities.

“Master Kong drinks will also be licensed by PepsiCo to start its branded products under the brand of pure fruit, and Master Kong drinks and Pepsi's existing bottling companies will have the right to distribute PepsiCo’s beverage brand products in China. Pepsi will incorporate this alliance into its global beverage innovation plan."

Win-win "marriage"?

Obviously, the industry is generally optimistic about this "marriage" and believes that this is a win-win situation. On Monday, the stock price of Master Kong rose by nearly 14% after resumption of trading.

In fact, this is a "marriage" that has been brewing for a long time. Chen Gongru told reporters that as early as two years ago, the two sides began to talk about it, and now it is "fruitful."

"The cooperation between the two parties is complementary, and each needs it. An alliance with Pepsi can fill Master Kong's gap in carbonated beverages. More importantly, Pepsi-Cola's international brand influence and brand innovation capabilities will provide Master Kong with sustainable development. Bring a new pattern." Chen Gongru said.

Master Kong obtained the indirect shareholding of Pepsi's 24 bottling companies through “marriage”, which will completely solve the bottleneck problem of its production capacity. At the same time, it will also make up for Master Kong’s short board in the carbonated beverage market. After “marriage”, Master Kong will expand itself. The "production line" and make up for the carbonated beverage market.

For PepsiCo, the benefits of “marriage” are also obvious.

The fierce competition in the beverage market coupled with the rise in the cost of beverages has caused Pepsi to appear “unsatisfied” in the Chinese market. Data show that in 2009 and 2010, Pepsi China's non-alcoholic beverage bottling business lost 45.5 million US dollars and 175.6 million US dollars, respectively. According to informed sources, PepsiCo's 24 bottling plants in China have "has lost more than half," resulting in Chinese companies in Beijing, Shenzhen and Fuzhou bottling plants dumping stakes.

Obviously, Pepsi has paid special attention to this alliance with Master Kong. It is reported that on November 4th, Lu Yingde, chairman and CEO of PepsiCo, came to China for this purpose. Lu Yingde said, "To win success on a global scale, we must absolutely have the best local business partners."

A beverage industry personage pointed out that PepsiCo's “convert rejection package” through the exchange of shares reduces its investment and operating costs. At the same time, PepsiCo China can also use Master Kong’s sales channels to promote the development of upstream and downstream industries. In fact, the core, most profitable concentrate is still firmly controlled by Pepsi himself.

However, Chen Gongru said that the cooperation between the two sides is a strategic one, and considering more is the future of sustainable development.

Increased market structure

According to statistics, Coca-Cola was China's largest soft drink manufacturer last year, with a market share of 16.8%, and Master Kong and Pepsi are ranked second and fourth respectively, with respective shares of 14.4% and 5.5%. The combination of Master Kong and Pepsi is undoubtedly a challenge to Coca-Cola.

Liang Mingxuan, a food industry researcher at China Investment Advisors, said that the cooperation between the two companies will definitely affect Coca-Cola. Combining Pepsi's strong brand awareness with Master Kong’s huge sales network, Master Kong will be comparable to Coca-Cola in many segments and the competition between the two will intensify. .

Well-known brand expert Zou Wenwu believes that the alliance between the two companies has strengthened the formation of monopoly on the fast-food beverage market. For Master Kong, it can strengthen its influence, improve Master's bottled production capacity in the country, and accelerate the in-depth distribution and operation of the Master Kong brand throughout the country. For Pepsi Cola, it eased production burdens and gained Master's brand-name, fast-moving consumer brand assets, which better captured the consumer trend for PepsiCo.

Zou Wenwu said that the foreign companies' business philosophy is to re-brand, production can be entrusted to others, seize the brand is the continuous driving force for the development of enterprises, perhaps this is Pepsi's extraordinary place. Seize Master Evergreen's brand, this can effectively obtain the market dividend in the expansion process of China's FMCG market.

However, there are still variables in their alliance.

According to a notice issued by Master Kong, the alliance is subject to the approval of the Chinese government and the Hong Kong stock exchange Master Kong shareholders meeting.

Chen Gongru told reporters that Master Kong had already sent the relevant approval materials to the Ministry of Commerce, and voting by shareholders was advancing.

In the industry analysis, for the strong alliance between Master Kong and PepsiCo China, shareholders should be happy to see this, and the greater “uncertainty” will come from the government level. Earlier, the merger case of Coca-Cola and Huiyuan Juice was precisely because of the alleged “anti-monopoly” and was eventually rejected by the Ministry of Commerce.

In this regard, Chen Gongru said that there will be no monopoly on cooperation between the two sides because the two parties only have a cooperative relationship, Pepsi is Pepsi, Master Kong is still Master Kong, and the existence of both parties in the market will not disappear because of the transaction.