FDBusiness.com

PepsiCo has agreed to form a strategic alliance with Tingyi Holding, one of the major food and beverage companies in China. Tingyi’s beverage subsidiary, Tingyi-Asahi Beverages Holding (TAB), will become PepsiCo’s franchise bottler in China. TAB, whose product offerings include ready-to-drink tea, bottled water and juice beverages, is one of the leading beverage manufacturers in China.

PepsiCo currently operates its China beverage business through 24 company-owned and joint venture bottling operations. Upon approval of the transaction, PepsiCo will transfer its indirect equity interests in the bottlers to TAB, and will receive as consideration a 5% indirect equity interest in TAB. PepsiCo will also have an option to increase its indirect equity interest in TAB to 20% by 2015, when China is projected to become the world’s largest liquid refreshment beverage market.

The transaction is subject to regulatory approval in China and the approval of the shareholders of Tingyi, which is a listed company on the Hong Kong Stock Exchange.

Indra Nooyi, chairman and chief executive of PepsiCo,

The shareholdings of PepsiCo’s existing Chinese joint venture partners in the joint venture bottling operations will not change as a result of the transaction. Under the new alliance, TAB will partner with PepsiCo’s current bottlers to manufacture, sell and distribute PepsiCo’s carbonated soft drink and Gatorade brands. PepsiCo will retain branding and marketing responsibilities for these products.

TAB also will begin co-branding its juice products under the Tropicana brand name under a license from PepsiCo. TAB and PepsiCo’s current bottlers will have the sole rights to distribute PepsiCo’s branded beverage products in China. In addition, PepsiCo will provide the alliance access to its global beverage innovation pipeline.

“To win globally, we need to have absolutely the best business partners locally,” says PepsiCo’s chairman and chief executive Indra Nooyi. “Tingyi has a history of successful partnerships with other companies, and we believe this proposed alliance will combine Tingyi’s superb distribution reach with PepsiCo’s innovation prowess, significantly enhancing our beverage business in China in the near term while maximizing PepsiCo’s future growth potential in the fastest growing beverage market in the world.”

In China, while converting its beverage business to its globally prevalent franchise model, PepsiCo will continue to independently operate its successful food business.