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Coke fizzles in bid to buy juice maker
By Jin Jing |
March 19, 2009, Thursday
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Print Edition
Print Edition
CHINA'S Ministry of Commerce yesterday rejected Coca-Cola's planned US$2.4 billion acquisition of top juice maker Huiyuan, deciding that the deal would have been bad for competition.
Had it been approved, the deal would have been the biggest acquisition in China's food and beverage industry as well as the biggest takeover for Coke in China. It was the first rejection since China's anti-monopoly law went into effect last August.
"Coke may have taken advantage of its leading position in soft drinks to restrain competition in the juice market, forcing consumers to pay higher prices and leaving them fewer options," the ministry said in a statement on its Website. "It also could have squeezed China's small and medium-sized juice makers out of the market."
Shares of China Huiyuan Juice Group Ltd slumped 19 percent in Hong Kong to HK$8.30 (US$1.07), the biggest drop since they started trading in 2007, before being suspended at 10:13am following a foreign press report that the deal may be blocked. The price was 32 percent below the HK$12.20 per share offer by Coca-Cola. The ministry announcement came hours later.
"It may now take Coke much longer to boost its presence in China's juice market, whether through other acquisition opportunities or direct investment." said Liu Jinhu, an analyst at Guohai Securities Co Ltd.
Muhtar Kent, Coca-Cola's president and chief executive officer, expressed disappointment over the rejection. "But we also respect the MOC's decision," Kent said.
"We are now focusing all of our energies and expertise on growing our existing brand and continuing to innovate with new brands, including in the juice segment," he said.
In its statement, Huiyuan said that the group respects the decision made by the commerce ministry.
"Huiyuan's production is normal for the time being and it will continue providing high-quality, safe and nutritious products to consumers," the statement said.
Coca-Cola offered to buy Huiyuan last September as it sought to accelerate development in China and boost its share in the juice market as demand for sparkling drinks fell globally due to health concerns.
The deal was expected to face little opposition from the government as the food and beverage industry is not among the strategic sectors that are watched carefully for acquisition moves by overseas firms.
But objections arose from smaller Chinese juice makers as they feared monopoly power by Coca-Cola in the soft drink market and stronger control of raw materials. Public concerns were also raised over losing the prestigious national brand. Huiyuan is China's leading maker of pure fruit juices, holding about 42 percent of the pure juice market.
Coca-Cola had 10 percent of the fruit and vegetable-juice market, which may rise 20 percent this year to US$14 billion, according to Euromonitor International.
Coca-Cola said on March 6 that it plans to invest US$2 billion in China over the next three years, focusing on new plants, distribution infrastructure, marketing and research.
Some Western observers said MOC's ruling on Coca-Cola could cut both ways in that Chinese firms that have been making high-profile acquisitions abroad may run into trouble of their own.
Australia's Foreign Investment Review Board is considering three big investments by Chinese companies in its mining sector. In particular, opposition to Rio Tinto Ltd's planned US$19.5 billion tie-up with China's Chinalco has been intensifying. The Australian Senate said yesterday that it would launch its own inquiry into foreign investment.
Had it been approved, the deal would have been the biggest acquisition in China's food and beverage industry as well as the biggest takeover for Coke in China. It was the first rejection since China's anti-monopoly law went into effect last August.
"Coke may have taken advantage of its leading position in soft drinks to restrain competition in the juice market, forcing consumers to pay higher prices and leaving them fewer options," the ministry said in a statement on its Website. "It also could have squeezed China's small and medium-sized juice makers out of the market."
Shares of China Huiyuan Juice Group Ltd slumped 19 percent in Hong Kong to HK$8.30 (US$1.07), the biggest drop since they started trading in 2007, before being suspended at 10:13am following a foreign press report that the deal may be blocked. The price was 32 percent below the HK$12.20 per share offer by Coca-Cola. The ministry announcement came hours later.
"It may now take Coke much longer to boost its presence in China's juice market, whether through other acquisition opportunities or direct investment." said Liu Jinhu, an analyst at Guohai Securities Co Ltd.
Muhtar Kent, Coca-Cola's president and chief executive officer, expressed disappointment over the rejection. "But we also respect the MOC's decision," Kent said.
"We are now focusing all of our energies and expertise on growing our existing brand and continuing to innovate with new brands, including in the juice segment," he said.
In its statement, Huiyuan said that the group respects the decision made by the commerce ministry.
"Huiyuan's production is normal for the time being and it will continue providing high-quality, safe and nutritious products to consumers," the statement said.
Coca-Cola offered to buy Huiyuan last September as it sought to accelerate development in China and boost its share in the juice market as demand for sparkling drinks fell globally due to health concerns.
The deal was expected to face little opposition from the government as the food and beverage industry is not among the strategic sectors that are watched carefully for acquisition moves by overseas firms.
But objections arose from smaller Chinese juice makers as they feared monopoly power by Coca-Cola in the soft drink market and stronger control of raw materials. Public concerns were also raised over losing the prestigious national brand. Huiyuan is China's leading maker of pure fruit juices, holding about 42 percent of the pure juice market.
Coca-Cola had 10 percent of the fruit and vegetable-juice market, which may rise 20 percent this year to US$14 billion, according to Euromonitor International.
Coca-Cola said on March 6 that it plans to invest US$2 billion in China over the next three years, focusing on new plants, distribution infrastructure, marketing and research.
Some Western observers said MOC's ruling on Coca-Cola could cut both ways in that Chinese firms that have been making high-profile acquisitions abroad may run into trouble of their own.
Australia's Foreign Investment Review Board is considering three big investments by Chinese companies in its mining sector. In particular, opposition to Rio Tinto Ltd's planned US$19.5 billion tie-up with China's Chinalco has been intensifying. The Australian Senate said yesterday that it would launch its own inquiry into foreign investment.
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