Coca-Cola Co. has abandoned its bid to purchase a Chinese juice company after Beijing ruled that the $2.4 billion transaction would violate China’s revamped antitrust laws.
Atlanta-based Coke announced its intent to acquire Huiyuan Juice Group Ltd. in September. At the time, Coke offered HK$12.20, about $1.56, per share for the Hong Kong-listed company.
The acquisition would’ve been the largest ever by a foreign company in China and was seen by some as the first real test of the new anti-monopoly laws, which were updated last August.
Huiyuan has about 40 percent of China’s market share in juice production.
When China’s Ministry of Commerce ruled March 18 that the transaction would unduly restrict competition in the juice sector, critics said the decision reeked of protectionism, a claim the ministry denied.
“If the acquisition of Huiyuan went into effect, Coca-Cola is very likely to take a dominating position in the domestic market and the consumers may have to accept the high price fixed by the company as they don’t have more choices,” the official Xinhua news agency reported the ministry as saying.
Coke President and CEO Muhtar Kent said in a prepared statement that Coke is “disappointed, but we also respect the Ministry of Commerce’s decision.”
Mason Cargill, a partner for international law firm Jones Day in Atlanta who specializes in cross-border mergers and acquisitions, said the ministry’s decision could’ve been payback for deals that the U.S. government rejected or discouraged in the past few years.
In 2005, China National Offshore Oil Company Ltd., or CNOOC, bid $18.5 billion for California-based Unocal Oil Co., setting off a political firestorm in Washington over the prospect of a Chinese company owning such a large player in a security-sensitive industry.
CNOOC withdrew its bid after 40 days.
A $2.2 billion deal between China-based Huawei Technologies and Massachusetts-based 3Com was nixed on national security grounds in 2007. Pentagon officials argued that it would’ve given a company with proven Chinese military ties access to U.S. defense-network technology.
Despite these high-profile cases, Mr. Cargill said that foreign acquisitions in China have gotten considerably easier over the past few decades.
In the early 1980s, when he did legal work for Atlanta-based Portman and Associates Inc.’s first mixed-use development in Shanghai, China, there was little real estate law, no written contract law and very few lawyers in China, he said.
Now, laws have gotten clearer, more Chinese businesspeople understand Western practices and mergers generally move along smoothly if they don’t involve huge sums like the Coke deal or politically sensitive industries.
The typical merger transaction in China is less than $100 million, and “for the vast majority of foreign acquisitions in China I don’t think this will deter them or prohibit them, but it gives the government a way to block really big transactions if they don’t like them,” Mr. Cargill said.
In China, the Ministry of Commerce must approve every foreign acquisition of a Chinese company. The deal must undergo an anti-monopoly review if it meets certain capital and market share thresholds, Mr. Cargill said.
Most non-controversial transactions are approved in a matter of a few months, he said.
Coke on March 6 opened a $90 million innovation center in Shanghai and said it would invest $2 billion more in the country over the next three years.
“We will now focus all of our energies and expertise on growing our existing brands and continuing to innovate with new brands, including in the juice segment,” said Mr. Kent. “Our recently opened $90 million Global Technology and Innovation Center in Shanghai will play a key role in bringing this innovation to life.”