Economy

Markets

Industries

Insights

Reports

Events

Longrun to acquire tea firms, open more stores

By Li Yingqing, Guo Anfei and Yu Tianyu (China Daily)
Updated: 2009-08-26 07:53

Tea manufacturer Longrun Tea Group Co Ltd is expanding its footprint by setting up more stores and through a series of mergers and acquisitions.

The Hong Kong-listed company, with a market capitalization of around HK$1.3 billion, said it would increase the number of franchise and chain stores under its fold to over 200 from 120 by next March.

Longrun also said it plans to acquire companies in tea producing provinces like Fujian, Zhejiang, Hunan and Yunnan.

The company has already commenced its M&A activities after disclosing that it intends to acquire a Fujian-based tea manufacturer in September for an undisclosed amount.

Longrun said it intends to be the brand management company for over 70,000 Chinese tea enterprises. It added that it would permit tea manufacturers to maintain their previous brand names and products even after acquisition, and its involvement would be mainly in accelerating business development.

In May, the Hong Kong-listed Long Far Pharmaceutical Holdings Ltd offered HK$160 million to acquire Longrun Tea Wealth Creation Co Ltd and renamed it Longrun Tea Group Co Ltd, marking Long Far's shift from pharmaceuticals to tea.

In addition, Long Far also signed an agreement with Rocket Capital Holdings Ltd (Rocket Capital) to forge a strategic partnership in July, under which Rocket Capital would subscribe 100 million new shares of Long Far at HK$0.25 per share and also purchase HK$30 million in convertible bonds at the preliminary conversion price of HK$0.3 per share.

As the major shareholder of Longrun Tea, Jasper Jiao, former chairman of Long Far, owns 66 percent of its shares, while Rocket Capital owns 13.76 percent.

Longrun Tea Group Co Ltd has an annual production capacity of over 10,000 tons of tea, and its sales touched 110 million yuan in 2008 with about 35 million yuan after-tax profits.

Related readings:  First Drinking Tea Day held in Hangzhou  City's love of tea inspires tea fair  Tea to help refresh Sichuan's economy  Green tea Coke debut

Company executives told China Daily that cooperation with Rocket Capital has helped the company raise funds to the tune of HK$53 million.

"We will use HK$37 million for development of the tea-related business and split it into three components. These include for establishing direct sales stores, developing marketing networks and enhancing product R&D. The balance of HK$16 million will be used to fund daily operations," said Jasper Jiao, chairman, Longrun.

Kenneth Huang, the controlling shareholder of Rocket Capital, said he remains optimistic on the success of Longrun's tea business and said it would help the company become one of the top firms in China in the next five years.

Wang Qing, deputy director of the China Tea Marketing Association, said the listing of Longrun Tea Group Co Ltd is a significant step for the Chinese tea industry, and he expects Longrun to help create quality tea brands and products.