U.S. investment firm Heckmann Corp. plans to tap China's growing bottled-water market by acquiring Hong Kong-based blow molder China Water and Drinks Inc. for US$625 million and using it as a platform to expand.
The deal will bring a big name in the U.S. water filtration, waste-water and bottled-water market into China. Richard Heckmann, chairman and chief executive officer of Heckmann, founded United States Filter Corp. in 1990 before growing it into a Fortune 500 company and selling to it Vivendi SA in 1990 for US$8.2 billion.
In a May 20 conference call with stock analysts, Heckmann said that Heckmann Corp. raised about US$430 million in an initial public offering in November on the New York Stock Exchange, and plans to have about US$230 million in cash available to fund further growth, after the CWD acquisition.
``We'll be in China in this very, very large and dynamic market, with lots of cash, with New York Stock Exchange currency, and the ability to roll up this business as fast as we want to do it,'' he said.
Heckmann Corp., based in Palm Desert, Calif., plans to double CWD's size in the next two years with new plants and acquisitions, and consolidate a bottled-water industry that it said has more than 250 competitors in China. CWD, with six plants in mainland China, had sales of US$56.8 million in 2007.
CWD expects sales of US$220 million this year, in part from five acquisitions the firm said it has under contract or is still negotiating. Those acquisitions would make CWD the fifth-largest bottled-water maker in China, Heckmann told analysts.
CWD would have annual capacity for more than 1 billion small bottles and 21 million 5-gallon jugs by the end of 2008, he said.
The company said it plans to expand distribution of its Darcunk bottled-water brand in China, and introduce vitamin water and other specialty water drinks. CWD also makes bottled-water products for Taiwanese Uni-President Enterprises Corp., and Atlanta-based Coca-Cola Co., which accounts for about 25 percent of its business.
It said China's bottled-water market has grown 17.5 percent a year since 2002, driven by rising living standards and lack of safe drinking water. An estimated 700 million Chinese drink contaminated water every day.
Xu Hongbin, founder and chairman of China Water, will remain as head of CWD, which will operate as a wholly owned subsidiary. Xu, along with other significant CWD shareholders such as Pinnacle Fund LP, Liberty Harbor credit fund, and Goldman, Sachs & Co. have agreed to convert their CWD holdings to Heckmann stock, the company said.
The US$625 million price tag includes US$170 million in cash and US$455 million in Heckmann Corp. stock.
While CWD's focus is China, Heckmann said he is looking beyond China to other parts of Asia.
Heckmann, who is also part owner of the Phoenix Suns NBA basketball team said the Heckmann venture is his full-time activity.