China Blocks Coke’s Bid for Huiyuan Juice

Last week, China rendered its long awaited verdict: it blocked Coca-Cola’s bid to buy one of China’s largest juice companies for $2.4 billion on antitrust grounds.

In case you haven’t been following the story, Coca-Cola made its offer to acquire China Huiyuan Juice Group Ltd. in early September 2008. Building upon the momentum it gained as a main sponsor of the Beijing Olympics, Coke wanted to further increase its market position in China, where it already sells one billion bottles of their product every year.

Beijing-based China Huiyuan Juice makes the country’s leading 100 percent juice and nectar brands. Founded in 1992, China Huiyuan is a privately-owned foreign company which listed its shares in Hong Kong in 2007. Two foreign companies, Groupe Danone of France and Warburg Pincus, the American private equity firm, hold minority stakes in the company. The acquisition of China Huiyuan by Coca-Cola would have been the largest foreign takeover of a China-based business.

China Law Blog, which is written by Dan Harris and Steve Dickinson, both American lawyers based in China, had it pegged right from the beginning. (Dan and Steve are both members of Harris & Moure, plc, a boutique International Law Firm.)

Commenting on China’s new M&A law in January, Steve said that the new law was more of the same. Foreign companies would be permitted to purchase small companies in China that the government didn’t want to be bothered managing, state-owned companies in trouble or financial difficulty that the foreign company could help restructure, or minority interests in large companies, if there was an added benefit such as technology transfer. However, the government would not allow purchases of majority interests in strong, successful companies in China. On that basis, China Law Blog correctly predicted that the Coke bid would be rejected.

For my part, I have to admit that I was somewhat surprised by China’s decision. When Coke first made its bid in September, I thought of writing an article for MTD on the deal. My angle would have been that it would test just how far China was willing to go to block foreign takeovers of the country’s leading companies. Over the last few years, there has been a noticeable shift in Beijing’s attitude toward foreign investment. In what was seen as a watershed deal, U.S. private-equity firm Carlyle Group ended its years-long effort last July to buy a stake in Xugong Group, one of China’s biggest manufacturers of construction machinery due to persistent regulatory resistance.

I never wrote the article because I honestly thought that Coke’s bid would be approved and that the story would be a non-event. My reasoning: China Huiyuan is already a foreign company that just happens to be doing business in China. Moreover, the company is privately-owned, not state-owned, and it is listed in Hong Kong. I didn’t see an anti-trust argument, so it seemed to me that rejecting the deal would be a stretch for China.

Whatever you think of China’s decision with respect to Coke, or for that matter the type of political backlash that cratered CNOOC’s bid for Unocal and that now threatens Chinalco’s proposed investment in Rio Tinto, the fact remains that it is now very difficult to buy a market position in China. Acquiring majority ownership in a large state-owned company has been off the table for several years now. As a result of the Coke decision, purchasing majority ownership in a private company is as well.

If you want to have a share of what will soon be the biggest market in the world for virtually any product or service, you will have to build it.

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