Tingyi (Cayman Islands) Holding Corp., a Taiwanese-owned food manufacturer with a broad production base in China, has agreed with U.S.-based beverage giant PepsiCo Inc. to set up a strategic alliance with both sides to hold a stake in each other.
According to an agreement released by the two partners Friday, Tingyi is set to acquire a 100 percent stake in Pepsi’s wholly owned beverage assets in China, while the U.S. firm will own a 5 percent stake in Tingyi’s beverage operations.
“Master Kong,” Tingyi’s instant noodle brand, currently ranks as the top seller in the China market, and the company is also involved in bottled water, tea and juice production, making it the largest supplier in China.
Tingyi said on its website, with China having the potential to become the largest beverage market in the world, that Pepsi has been granted an option to raise its stake in Tingyi’s beverage assets to 20 percent by 2015 through its close ties with Tingyi.
However, both sides did not disclose other financial details in the transaction.
Under the agreement, Tingyi will produce and distribute Pepsi’s carbonated soft drinks and Gatorade brands, while Pepsi will continue to own its brands in China and take responsibility of marketing its products on the mainland.
Tingyi, which is listed on the Hong Kong Stock Exchange and has issued Taiwan depositary receipts (TDRs) on the Taiwan Stock Exchange since December 2009, said the alliance is pending approval from Chinese regulators and Tingyi’s shareholders.
Market analysts said the deal showed Tingyi’s ambitions to expand its strength to the carbonated soft drink turf and the links with Pepsi are expected to boost its international visibility.
Lin Ching-tang, deputy CEO of Tingyi, said the alliance indicated his company’s strength has been recognized by a multinational company, like Pepsi, adding the company has an intent to work with Pepsi to sell its products in the global markets in five to 10 years.
Analysts said although Pepsi is a well-established beverage company with more than 100 years of history, it is still trailing rival Coca-Cola in the fast growing China market. They said the move to build ties with Tingyi is a crucial step for Pepsi to broaden its reach on the mainland.
Currently, Pepsi has a roughly 32 percent stake in China’s carbonated soft drinks market, far behind Pepsi’s 55 percent.