Huiyuan Juice Up Sharply On Danone Deal To Sell Stake At Premium

HONG KONG -(Dow Jones)- Shares of Huiyuan Juice Group Ltd. (1886.HK) rose as much as 8% early Thursday after French food company Danone SA (BN.FR) said it is selling its 22.98% stake in the Chinese beverage producer to a Hong Kong-based private-equity firm at an 11% premium to the stock's closing price Wednesday.

Hong Kong-listed Huiyuan was up 6.1% midday at HK$5.75, retreating from a high of HK$5.85 earlier in the session. The Hang Seng Index was down 0.1% at 21,068. Market volume for the stock was HK$187.9 million, up sharply from HK$42.05 million for all of Wednesday.

Beijing-based Huiyuan, which produces fruit-juice and nectar products in China, listed its stock in Hong Kong in February 2007, with Danone being one of its strategic investors. Huiyuan is China's biggest pure fruit juice producer, with a share of more than 40% of the country's market, analysts say.

Danone said late Wednesday it agreed to sell its stake in Huiyuan to Hong Kong-based private-equity firm SAIF Partners for HK$2.02 billion (US$259.6 million), or around HK$6.0 a share.

Huiyuan made headlines in late 2008 when soft-drink giant Coca-Cola Co. offered to buy the beverage producer for US$2.4 billion, in what would have been the Atlanta-based company's second-biggest acquisition ever. Coca-Cola offered HK$12.2 in cash per Huiyuan share, more than double the price Danone agreed to sell the shares at on Wednesday, and triple the stock's then-traded price.

Danone had agreed to sell its stake to Coca-Cola at the large premium but the deal was eventually blocked by the Chinese government on antitrust grounds following the enactment of an antimonopoly law.

In its statement Wednesday, Danone said it will concentrate on its four core businesses in China of selling dairy products, bottled water, baby food and medical nutrition products. The company said the sale of the fruit juice company stake meets its strategy of focusing on bottled water in China.

Louis Tse, an analyst at Value Convergence CEF, said the sale at a premium seems to be positive for the juice company as Danone's stake disposal appears more related to its own strategy rather than on Huiyuan's business outlook.

But he said further gains will likely be capped around HK$5.85 given Thursday's sharp rally. "I won't suggest chasing Huiyuan's shares at the current level, as they may succumb to profit-taking in the near term after their current sharp rise," said Tse.

Yuanta Research analyst Charles Yan said in a note Thursday he sees limited upside for Huiyuan's shares, with the latest deal having no material impact on the company's operations.

"We remain concerned that its newly launched juice drink products will not be able to succeed in the extremely competitive China beverage market," Yan said.

-By Joanne Chiu and Susanna Tai, Dow Jones Newswires; 852-2802-7002; joanne.chiu@dowjones.com