COCA-COLA Co.'s $2.4 billion deal to acquire China Huiyuan Juice Group Ltd. offers the first major test of China's new antitrust law -- one that comes amid public concern over the loss of national brands.
The new law, which took effect last month, attempts to streamline and standardize the government's antitrust activities. Previously, no unifying law was on the books, and several agencies had a say in matters of general competition and mergers.
How Beijing's regulators handle the case could offer a clue as to whether the law will remove a layer of murkiness from China's deal landscape or add another one. Although Chinese officials have indicated they will lean toward international best practices, implementation rules clarifying the new law have been slow to come out. It isn't clear whether the government agencies involved would be equipped to handle the case so soon.
Antitrust officials who scrutinize deals involving Chinese companies will consider the size of the market and the combined company's position in it, said Liu Cheng, an attorney in the Beijing office of law firm DLA Piper. Other officials who regulate all types of foreign investment in China also will be involved.
Defining the market could be tricky. According to Merrill Lynch analysts, Coca-Cola will control 37% of the Chinese juice market with its brands if it succeeds in the acquisition. Coke holds 28% of the overall juice market, but focuses on the lower end with its Minute Maid brand. Huiyuan competes mostly in the high-end juice market, holding a more than 40% market share.
The Ministry of Commerce, which oversees the application of the antimonopoly law, will define the market. Mr. Liu said the ministry's antitrust office hasn't been staffed yet.
The ministry said Thursday it hasn't received a filing from either Coke or Huiyuan. It didn't elaborate or take a stance on the deal.
In addition, Beijing regulators will consider more esoteric issues, such as whether Huiyuan's position as a nationally famous brand -- a status granted by the government -- would be affected.
'There are no clear standards,' Mr. Liu said of the national-brand issue. 'It's really on a case-by-case basis and really hard to estimate.'
Coke has indicated in its statements that it is willing to meet regulators' requirements. 'We've clearly communicated that we will use the expertise that we have as global beverage company to further develop the Huiyuan brand,' a Coke spokesman said Thursday.
Coke Chief Financial Officer Gary Fayard said Wednesday the beverage company estimates it will take until spring 2009 to win approval. Huiyuan didn't return calls.
China has allowed a few brands to be sold to outside investors. Anheuser-Busch Cos. bought Harbin beer in 2004. But China also has been skeptical of Western takeovers. In July, U.S. private-equity firm Carlyle Group ended its years-long effort to buy a majority stake in Xugong Group, one of China's biggest manufacturers of construction machinery, amid persistent regulatory resistance.
As with past cross-border deals, government leaders will ultimately determine whether a deal goes through. They may face public pressure to keep a domestic brand in local hands. Gauging public sentiment in China is difficult, but according to an online poll conducted by Chinese Web site Sina.com, 82% of more than 40,000 respondents oppose Coke's purchase of Huiyuan.
Coke has been working for decades to stay in Beijing's good graces. It spent an estimated $400 million to sponsor the Beijing Olympics, infusing its advertising with patriotic themes to appeal to growing Chinese nationalism.
The company also has a longer history in China than Huiyuan. It has been doing business there since 1979, while Huiyuan was founded in 1992.
Rick Carew / Sky Canaves |
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