China trips Coke on Huiyuan Juice acquisition

18 March 2009

Chinese anti-trust authorities have rejected Coca-Cola's, $2.4-billion acquisition bid of Beijing-based Chinese juice maker Huiyuan Juice as reported by China News Service, citing the Chinese ministry of commerce, saying that the deal could restrict competition and lead to higher prices for consumers.

The decision, announced today, surprised some American lawyers and others in China who had been closely following the case. Some thought government clearance was likely because the proposed takeover did not involve a strategic asset and rejecting the first big case under the antitrust law subjected Beijing to criticisms of protectionism.

In what would have been the first overseas takeover of a Chinese company and Coca-Cola's biggest acquisition in China, the Chinese authorities squashed the deal, not wanting to lose an iconic brand to a foreign company.

It was also the first major test for China's commerce ministry since it made its anti-monopoly laws more stringent last August, a month after it prevented the second largest private equity firm, the US-based Carlyle Group from acquiring China's largest construction equipment maker, Xugong, in July (See: China vetoes Carlyle's acquisition of machinery maker Xugong Group), though the Chinese company had sought Carlyle's backing to expand in the US market. 

With anti-monopoly regulators evaluating the deal since it was announced in early September, (See: Coke pulls-off biggest ever acquisition of Chinese firm with $2.4-billion buy of Huiyuan Juice) it became a political liability for China after Huiyuan's rivals, various protectionist groups and media started lobbying the ministry of commerce to reject the deal saying that Coca Cola would eventually have a stranglehold in the Chinese beverage market.

The rejection came despite Muhtar Kent, president and CEO of Coca Cola, visitng Beijing last week to reassure Chinese officials that it would create more jobs and protect Chinese farmers who supply raw materials to Huiyuan Juice Co as well as increase its investment in China.

Huiyuan's founders and major shareholders had endorsed the sale as a way for the company to improve product development and marketing.