September 11, 2008

Coke’s Bid Could Set Precedent in China

Coca-Cola plans to seek approval for its $2.5 billion bid for the juice maker Huiyuan under China's antitrust law, the final obstacle to what would be the largest foreign takeover of a Chinese company.

Analysts and lawyers said the application would be closely watched as it was the first case to test the nascent law.

Fears that the deal could be derailed under the anti-monopoly regulations have helped push Huiyuan Juice Group's shares down 13 percent from their highest price this year, reached on Sept 3 after the purchase was announced.

"This will be the very first case under China's antitrust law, implemented on Aug. 1," Huiyuan's chief financial officer, Francis Ng, said at a news conference Wednesday.

"The offer price had been carefully considered by both the buyer and the sellers," Ng said when asked whether he thought the offer price was fair.

Kenth Kaerhoeg, a Coca-Cola spokesman in Hong Kong, said: "We will obviously comply with the process, and we'll facilitate it based on what the regulators ask of us." But, he added, it would be inappropriate to comment on the regulatory process.

The European Union Chamber of Commerce in China asserted Tuesday that the Huiyuan deal would be a litmus test of Beijing's attitude toward foreign business, while also saying that rising economic nationalism was deterring investment by European companies and hampering access to the domestic Chinese market.

Coca-Cola, looking to make inroads into a pure-juice segment of the Chinese market and shoring up its lead in the overall beverages industry, is paying three times the market price for the Hong Kong- listed, mainland Chinese company.

Some industry experts argue that Beijing has no interest in stopping a nonsensitive deal, but others say that a public outcry will have regulators scurrying to protect a beloved national brand.

Chen Yuan, a lawyer at the legal firm Linklaters, argued that the high-profile acquisition might ignite nationalistic sensibilities, but that the government was unlikely to block the deal without good reason, partly because the world was watching.

Ng said that Coca-Cola was preparing to submit an application to China's Ministry of Commerce. Huiyuan will cooperate fully in the process, he added, but declined to comment on how long it might take the ministry to make a ruling.

Donald Straszheim, vice chairman of Roth Capital Partners, was skeptical that the deal would be allowed, noting a regulation protecting "famous brands" from foreign acquisition.

Some analysts, however, said that China had much to gain from the deal.

"We believe Beijing will not stand in the way of the takeover even if it may make a point of delaying the approval process," Renee Tai, a CIMB-GK analyst, wrote last week.

Tai added that China had more to gain from continued investment from the global U.S. conglomerate "than from a pointless exercise of refusing Coca-Cola's proposal to acquire a juice company."

Originally published by Reuters.

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