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American Beverage Giant's
Merger Fails
Special> American Beverage Giant's
Merger Fails
UPDATED: March 30, 2009 NO. 13 APR. 2, 2009
A Deal Denied
The largest case of a foreign company trying to acquire a Chinese one is the first to be rejected under the country's Anti-Monopoly Law
By LAN XINZHEN
Share

On September 3, 2008, Coca-Cola announced a $2.3-billion cash bid for Huiyuan. On the same day, Hong Kong-listed Huiyuan also issued a statement, saying a wholly owned subsidiary of Coca-Cola would purchase all its outstanding shares for a total of HK$17.92 billion.

What Coca-Cola intended to acquire was mainly downstream links in Huiyuan's industrial chain, such as its juice and canning businesses, which are the major businesses of the Hong Kong-listed company. According to an additional agreement between the two companies, within two years after the acquisition, Coca-Cola would purchase juice concentrate and concentrate pulp for raw materials from Huiyuan.

Monopolistic concerns

Coca-Cola submitted its application for the acquisition to the MOFCOM on September 18, 2008. About a month later, the ministry decided to accept the case in accordance with the Anti-Monopoly Law and examined it from the aspects of market share and controlling power, market concentration, influence of concentration on market access and technological advancements, influence of concentration on consumers and other related operators, as well as the influence of the brands on the juice market. The ministry solicited opinions from various parties and experts during the review process.

But the MOFCOM decided that the acquisition would have unfavorable effects on market competition. After the acquisition, Coca-Cola could have used its dominant position in the carbonated drinks market to sell juice by tie-in sales, bundling or fixing other exclusive transaction conditions to restrict competition in the juice market. This could have forced consumers to pay higher prices or have fewer products from which to select. The ministry also said the acquisition could squeeze the development space of small and medium-sized juice makers and have an unfavorable impact on the competition structure of China's juice market.

To reduce the unfavorable impact of the acquisition on competition, the MOFCOM held discussions with Coca-Cola on additional restrictive conditions, requiring it to provide feasible solutions. Coca-Cola expressed its opinions on the issues that the ministry raised and offered a tentative solution and revised the acquisition scheme. After further evaluation, the ministry deemed the revised scheme would not be able to reduce the unfavorable impact of the acquisition on competition and rejected the deal.

Pan said that the MOFCOM's concerns were not unreasonable. According to statistics released by the National Bureau of Statistics, by the end of November 2007, there had been more than 4,000 juice makers in China, of which 340 fruit and vegetable juice makers had annual sales revenue of more than 1 million yuan ($146,412) each. Among these large juice makers, 113, or nearly one third, were foreign-invested companies or Hong Kong-, Macao- or Taiwan-invested companies. In 2007, the revenue of foreign juice makers accounted for more than half of the industry's total sales revenue, while their combined profit and market share both surpassed 70 percent. The ministry believed that if it permitted Coca-Cola to acquire Huiyuan, Coca-Cola could have become a monopolist and limited the number of product choices for Chinese consumers. It also could have raised product prices, forcing consumers to buy more expensive juice.

Not bad for Coca-Cola

When the MOFCOM rejected the deal on March 18, Coca-Cola issued a statement, saying it would "not be able to proceed with the acquisition."

But Pan said Coca-Cola was just "swimming with the tide," because the ministry's rejection of the acquisition for anti-monopoly reasons would be a great help to the company. When the American beverage maker intended to purchase Huiyuan, it was still a good time for the global economy. Huiyuan's sales had reached 2.66 billion yuan ($388.87 million) in 2007. Coca-Cola believed that after it acquired Huiyuan, it would become the flagship of China's juice industry, Pan said.

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