Legal and deal types spent part of Wednesday afternoon parsing the brief statement China’s Ministry of Commerce issued when it rejected Coca-Cola’s proposed $2.4 billion acquisition of juice maker China Huiyuan Juice Group. Beyond the actual result, the statement might say something else: How will China treat future deals?
The rejection, disclosed Wednesday, marks the first time China has used its new antimonopoly law to kill a deal. “What it will do is show how the process works and what kind of visibility we will get on reasons behind approval or rejection,” said Andrew Colosimo, a partner at Fried Frank in Hong Kong who works on U.S.-China deals.
Added Peter Wang, a partner at Jones Day in Beijing who works with antitrust issues, “It would be fair to use the word ‘landmark.’”
To be sure, it is unclear how much the decision was guided solely by China’s view of its new law. Some deal makers were wondering whether some political or diplomatic issue might be behind the move–a constant concern in a nation where much official decision-making is done behind closed doors. Still, taken at face value, the objections Chinese officials listed suggest a broader interpretation of what constitutes an anticompetitive deal, Mr. Wang said.
The brief notice didn’t delve into the potential price implications in narrow niches. Instead, it specifically cited Coke’s power in soft drinks–the business of selling fizzy colas–as something the company could use to leverage over the fruitier juice business. It also cited the power of a single company holding the big Huiyuan and Minute Maid brands, and the inability for smaller brands to compete with that.
These arguments typically wouldn’t make an antitrust case in the U.S. by themselves and imply size of the buyer itself could be a factor in any deal, Mr. Wang said. “It raises a little bit of concern in my mind that they’re going to consider theories of competitive harm that may not be as direct as companies would like,” he said.
For Victor Gao, a figure in China’s finance and private-equity circles, the broader point shown by Wednesday’s move is that China has learned a protectionist lesson well. He says foreign investment was welcome until China’s Cnooc Ltd. bid for Unocal Corp. of the U.S. four years ago, only to back away in the face of a political outcry. The solution, he says, is more-modest deals that see U.S. and Chinese buyers taking partial stakes or sharing power on each others’ shores.
After all, both need the investment, he said. “Politicians everywhere should not see devils in angelic situations,” he said.
(By Carlos Tejada)
From: http://blogs.wsj.com/chinajournal/2009/03/18/all-technique-how-china-rejected-the-coke-huiyuan-deal/