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2009-03-19 | All chapters

China Rejects Coca-Cola's Bid for Huiyuan Juice
Han Wei, Yang Binbin and Wang Shanshan, Caijing, 18th March 2009

The Ministry of Commerce has rejected U.S. drink giant Coca-Cola Co.'s proposed takeover of Huiyuan Juice Group. A March 18 statement on the ministry’s website said the deal violated China’s anti-trust law, which took effect in August 2008.

According to the ministry, which had been reviewing the deal since November, acquiring Huiyuan would give Coca-Cola an inordinately large share of the country’s juice trade, thus hindering other companies from entering the juice market and squeezing the profits of smaller competitors.

The ministry said it had negotiated with Coca-Cola about the terms of the acquisition and asked the company to submit revised plan. Coca-Cola complied, but revisions failed to satisfy China’s anti-trust laws, said the ministry.

Xie Lin, an analyst from JP Morgan, said that the takeover would have given the U.S. company a near-monopoly in juices.

Neither company has offered a comment yet.

Earlier on March 6, Coke’s chairman, Neville Isdell, voiced concern about increasing protectionism in a speech at the Council on Foreign Relations. He said the structure of global commerce is being re-written under the current financial crisis, and warned that emerging protectionism will hamper trade and slow recovery.

The European Union Chamber of Commerce in China issued a statement after the Ministry's announcement saying that while supporting the ministry's stated intention to guarantee an open and competitive environment in the Chinese market, the Chamber believes that this goal can best be achieved by welcoming more international investors into the Chinese market through eased restrictions and greater transparency, and by lowering any existing barriers to market entry and expansion.

A source closed to Coca-Cola said the U.S. drink maker had already gotten cold feet before the deal was blocked.

On February 28, the chairman of Huiyuan, Zhu Xinli, said that opposition to the acquisition had increased on Coca-Cola’s board. Coke later issued a statement denying it had changed its position.

In September 2008, Coca-Cola agreed to purchase Huiyuan for at least US$ 2.3 billion. Had the deal gone through, it would have been the largest foreign takeover of a Chinese company.

Huiyuan is China's largest juice producer. According to the market research firm AC Nielsen, the company controlled nearly 43 percent of China's 100 percent juice market and about 40 percent of the nectar market in 2007. Coca-Cola's share of China's juice market in 2007 was 9.7 percent, according to Euromonitor.

Trading of Huiyuan's shares in Hong Kong was suspended at 10 a.m. Share value had plunged 19.42 percent before the suspension.

Source: http://english.caijing.com.cn/2009-03-18/110123724.html