Coca-Cola’s US$2.3 billion bid for fruit-juice maker China Huiyuan Juice Group is anything but routine. Potentially the largest-ever takeover by a foreign company in China, it will be the first test of China’s new anti-monopoly law.
The law’s ambiguity, and public sentiment for the famous Chinese juice brand, make the outcome uncertain.
The law, which took effect on August 1, has a clause protecting “famous brands” from foreign acquisitions. It also bars mergers that hurt competition, giving regulators wide discretion.
The proposed takeover would double Coca-Cola’s share of China’s juice market, which currently stands at 10%, according to market research firm Euromonitor International. Despite complaints from some local rivals that a 20% share would be too big, the deal is unlikely to threaten the small-scale juice producers that currently control more than 60% of the market.
For its part, Huiyuan insists the deal is in the best interests of China’s economy and that Coca-Cola will keep the juice-maker’s name and develop the brand.
The popularity of that brand could influence regulators. More than 80% of 76,000 participants in a recent online poll by Sina.com voted against Coca-Cola’s purchase of Huiyuan. Some analysts believe the regulators will not allow themselves to be swayed by public sentiment given the high profile of the deal. However, it would not be the first time that public and industry opposition has combined to thwart a foreign takeover in China.
The new law states that mergers must undergo an anti-monopoly review if the company created by the deal would have revenues of US$58 million in China or US$1.3 billion worldwide.
After a formal application for a merger is received, regulators have 30 days to issue a ruling. But further reviews can extend that deadline by up to 150 days. Coca-Cola CFO Gary Fayard estimated the deal will be approved by the spring of 2009.
A statement published by state media offered no hint as to what the outcome might be.
“The commerce ministry will adhere to the principles of a market-oriented economy, which are against market monopoly but support normal market activity,” it said.