labels: M&A, Soft drinks
Coca-Cola keen on at least minority stake in Huiyuan Juice: report news
24 April 2009

Undaunted by China's rebuff to its acquisition deal with the Huiyuan Juice, China's biggest juice maker, US soft drinks giant, Coca-Cola has still not given up and is now believed to be holding informal talks to buy a minority stake, reported The Wall Street Journal citing people familiar with the development.

Under the new anti-monopoly law enacted last year, Chinese anti-trust authorities had rejected Coca-Cola's, $2.4-billion acquisition bid of Beijing-based Huiyuan Juice in March 2009, saying that the deal could restrict competition and lead to higher prices for consumers. (See: China trips Coke on Huiyuan Juice acquisition)

Coca-Cola and Huiyuan's top management is now exploring a wide range of options to enable the Atlanta-based US soft drinks giant acquire at least a minority stake without being rebuffed again by the Chinese anti-trust authorities.

The rejection came despite Coca-Cola having sweetened the $2.4-billion deal by announcing that it will invest $2 billion over a three-year period in China on new plants and distribution infrastructure, sales and marketing and R&D and create more jobs.

While rejecting Coca-Cola's bid, China had said that it did not want to lose an iconic Chinese brand to a foreign company and that the deal would unduly restrict competition, aserting that the regulators had made an objective judgment based on the anti-monopoly law and it was not trade protectionism. (See: China defends refusing Coke deal)

Beijing issued rules in 2006 that bar foreign ownership of companies in power generation, weapons and other industries, but fruit juice makers are not mentioned

Huiyuan, founded in 1992, is a dominant player in China's beverage market with about 46 per cent market share and exporting its beverages to 30 countries, including the US and Japan.

The company's beverage range includes orange, apple and pear juice and has doubled its sales in the past few years to $380 million last year. Huiyuan went public in Hong Kong in 2007.

Coca-Cola has been operating in China since 1979 and sells over a billion bottles of Coke a year besides other products, like Sprite and its Minute Maid orange juice in China.

It also has more than 33,000 employees in China with approximately 300,000 employed indirectly at its suppliers who serve nearly 1.9 million customers every week and plan to grab more of the 1.3 billion consumers in China.

China is a top destination for foreign investment but the purchase of existing companies is still unusual and politically sensitive. After Coca-Cola announced its bid, comments posted on Chinese Web sites called its founder, Zhu Xinli, a traitor. Huiyuan defended the deal as being in the best interests of the Chinese economy.

It was also the first major test for China's commerce ministry since it made its anti-monopoly laws more stringent last August, a month after it prevented the second largest private equity firm, the US-based Carlyle Group from acquiring China's largest construction equipment maker, Xugong, in July, (See: China vetoes Carlyle's acquisition of machinery maker Xugong Group) though the Chinese company had sought Carlyle's backing to expand in the US market.

The US government has also made Chinese acquisitions difficult on its home ground, where to a certain extent, the Chinese have also retaliated, as Morgan Stanley and Citigroup are still waiting for their joint ventures to be approved although it has applied nearly a year back.

But European banks have not faced the same problems as the Chinese regulators have approved the license applications of Credit Lyonnais, Deutsche bank and Credit Suisse in recent months.

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Coca-Cola keen on at least minority stake in Huiyuan Juice: report