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2009-03-24 | All chapters

Insider View of Coca-Cola's Huiyuan Bid

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The acquisition by Coca-Cola priced at about 2.3 billion dollars, announced last September, would have been the largest ever buyout of a Chinese company by a foreign rival.

In a statement released on its website, the Ministry of Commerce claims the planned takeover violated the provisions of the Anti-Monopoly Law, adding that it would have restricted competition and harmed the domestic juice industry.

Coca-Cola so far controls over half of the Chinese soda market by volume, leading its long-time rival Pepsi by 20 percent. Despite being the world's largest soft drink manufacturer, its share in China's juice market is relatively small. Huiyuan holds more than 33 percent share, while Coca-Cola is far behind the leader with less than 12 percent. China worries if Coca-Cola's proposal is approved, it could use its dominant position in the carbonated soft drinks market to promote its fruit juices through tied selling. And consequently, consumers may eventually have fewer choices and be forced to accept higher prices.

Song Hong is a researcher with the Chinese Academy of Social Sciences.

"If the purchase were given the green light, it would not only have a negative impact on Huiyuan, but also harm the competitive environment and structure of the whole industry. Huiyuan is a big player in the Chinese juice market. If Coca Cola takes over Huiyuan, the two big players will have a dominant influence in the industry and other juice-makers will be put under great pressure."

Han Meng, a researcher with the Chinese Academy of Social Sciences notes it will be a great loss for Chinese consumers if its native brand is merged with other large international players.

"Huiyuan would disappear from the market if the deal were approved. Instead, US-made drinks would dominate the market. Then for ordinary Chinese consumers, they would eventually have fewer choices and be forced to accept higher prices."

Concerns have emerged that China might use the anti-monopoly legislation to prevent foreign companies gain access to important sectors. As one of the initiators of China's first anti-trust law, Wang Xiaoye, a legal expert with the Chinese Academy of Social Sciences says the deal would have squeezed out other small and medium-sized enterprises and would not be good for the development of the country's juice industry overall.

"The legislation is not only to protect small and medium-sized enterprises, but to ensure fair market competition. The reason for blocking the bid is to make sure that consumers are not forced to accept higher prices and a smaller choice of products and they will have a say when deciding what to buy and how much to pay. I think the decision will help provide diverse products with favourable prices and better quality."

In a written statement to CRI, the European Chamber of Commerce in China says it is closely watching the case and hopes the government will give a detailed explanation of reasons for the rejection.

The Ministry of Commerce has stressed that the rejection is only an isolated case and does not suggest any change in China's policy on foreign investors.

Since the anti-monopoly law was enacted last year, China has investigated 29 proposed acquisitions and approved 24.

Source: http://english.cri.cn/6826/2009/03/24/1721s467571.htm