Coke's China Offer Rejected

Coke's attempt to buy China Huiyuan Juice Company was rejected today, on the grounds that it violated China's antitrust laws.  If it had succeeded, the $2.4 billion dollar deal would have been the largest takeover by a foreign company in China.  Instead, Huiyuan remains Chinese.

This decision doesn't come as a huge surprise.  Within the current business climate, it's extremely difficult for foreign corporations to take full control of major Chinese companies.  On the other hand, many multinational corporations, including Coca-Cola, already have a strong presence in China. 

Even though Huiyuan's executives and shareholders supported Coke's offer, according to one unofficial web survey of about 120,000 people, more than 80% of participants supported the government's decision to disallow the takeover of Huiyuan on the grounds that it should remain Chinese.   

China's Ministry of Commerce released a statement detailing reasons the government would not permit the transaction.  You can read the Wall Street Journal's translation of the statement here, but essentially, after an extensive review, the Ministry of Commerce determined Coke's acquisition would "have an adverse impact on competition."

The Ministry maintains the transaction would violate the last August's Antimonopoly Law, and that Coke's purchase of Huiyuan would prevent other small and medium-sized juice companies from competing fairly.  It could also enable Coke to drive up juice prices.

While the Ministry makes a case, the fears that the acquisition would create a monopoly might be a bit overstated.  Coke's primary product is Coca-Cola, not juices.  It's unlikely that Coke's juice existing juice products, which I can't ever recall seeing in China, would have simply choked out the competition. 

According to Euromonitor, the combined market share of Huiyuan and Coke in the fruit and vegetable market last year was only 20.3%.  This could hardly be considered a monopoly, especially considering that Coke's market share in the China's carbonated beverage market is 52.5%.  

Most foreign corporations view this decision as a bad precedent for other foreign firms interested in acquiring Chinese companies.  Coca-Cola has an extremely well-established presence in China, so if they can't successfully purchase the juice company, who can?

In the near future at least, a foreign acquisition of any major Chinese company remains very unlikely.