Taiwanese noodle and drink manufacturer Tingyi (Cayman Islands) Holding announced that it had signed an agreement with U.S. beverage giant PepsiCo Inc. to form a strategic alliance within the beverage business in China.

According to the announcement, Tingyi-Asahi Beverages (TAB) – which is Tingyi’s beverage joint venture with Japan’s Asahi Group Holdings – will take over PepsiCo’s entire non-alcoholic beverage bottling business throughout China. In return, PepsiCo will acquire a 5 percent indirect interest in TAB worth about US$55 million. In addition, PepsiCo will have an option to increase its stake up to 20 percent by 2015.

Tingyi said that the parties have agreed on a book value of US$600 million for PepsiCo’s bottling operations in China, which have been losing money for the past two years – US$45.5 million in 2009 and US$175.6 million in 2010. Increasing raw material costs and fierce competition within the Chinese beverage industry have contributed to the U.S. company’s losses.

The final agreement agreed upon by Tingyi and PepsiCo turned out to be somewhat different from original estimates, which were that Tingyi would buy the management rights of PepsiCo in China or that it will purchase 51 percent interest in PepsiCo’s division in the country. Furthermore, Tingyi used the expression “strategic alliance” instead of “purchase” in its agreement.