CORRECTED: SNAP ANALYSIS: In blocking Coke, a chilling message
China on Wednesday rejected a $2.4 billion bid by Coca-Cola for China’s top juice maker, Huiyuan Juice, blocking what would have been the largest-ever takeover of a Chinese company by a foreign rival.
Here are some of the possible repercussions:
SERIOUS PRECEDENT
The Ministry of Commerce’s ruling, on grounds that the merger would have been bad for competition, was the biggest test yet of how Chinese officials would implement a tough anti-monopoly law enacted last year.
Until last week executives and lawyers had expected the deal to pass scrutiny, albeit with strings attached, especially after Coke recently agreed to invest an extra $2 billion in China.
Instead, the ruling will fan fears that the ministry will rule not on narrow market-concentration grounds but on the basis of provisions in the law permitting it to consider China’s national economic development and the protection of well-known brands.
“It indicates that the Ministry of Commerce is going to take a very hard look at foreign acquisitions of leading Chinese brands, even if the foreign acquirer has little or no market penetration in that particular segment of the market,” said Lester Ross, managing partner with the WilmerHale law firm in Beijing.
By setting a high bar for deals to be approved, the ruling will make other foreign bidders think long and hard before embarking on a takeover — even if it is friendly and priced at a rich premium, as was the case between Coke and Huiyuan faxless payday loans.
“From a purely competitive point of view, I don’t think this would have affected the Chinese market. Maybe there are other factors that affected the decision,” said Michael Gu, a partner with Zhong Lun Law Firm.
“It is a really bad example,” he said of the ruling. “It will have a negative impact on foreign investment.”
But Selina Sia, a beverages analyst with JPMorgan in Hong Kong, said the ruling was self-evident because the two companies would have held 40 percent of China’s fruit juice market.
“If Coke were to take over Huiyuan, it would dominate the soft drink market in China, which would not only hurt consumers, but also other participants,” she said. “Not only China, but every country has the same rules on monopolies.”
PROTECTIONISM
No matter whether it is justified or not on anti-monopoly grounds, the ruling will fan concerns that economic nationalism is on the rise in China — as elsewhere — as the crisis deepens.
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