China flunks first major antitrust test with Coke

By Michael Flaherty

HONG KONG (Reuters) - From a pure antitrust perspective, China's basis for the rejection of Coca-Cola's $2.4 billion bid for Huiyuan Juice failed to stack up to international standards.

The Coke-Huiyuan deal was China's first major test to its new antitrust laws, enacted last year in an effort to bring its business competition rules in line with the rest of the world.

Political and economic factors almost certainly played a role in China's rejection, as they have in other cases across the world, according to lawyers.

But the official stance for turning down the deal was "concentration," or Coke's potential ability to dominate the market at the expense of smaller, local competitors.

While a Coke-Huiyuan link would have put together two strong companies, rejecting the acquisition on those grounds does not follow typical antitrust standards, lawyers said.

"Most anti-trust observers do not agree with the substantive anti-trust analysis of the Chinese government," said Scott Jalowayski, a Hong Kong-based attorney at law firm Ropes & Gray.

"Because the observers look at the underlying market, which is for juice. Coke does not have any appreciable market share in the juice business."

As of last September, Huiyuan controled 10.3 percent of China's fruit and vegetable juice market and Coca-Cola 9.7 percent.

Jalowayski added that depending on how one looks at the business, the acquisition wouldn't affect competition in the juice market.

WELFARE OF OTHER RIVALS

John Taladay, a U.S. partner in the government antitrust practice of Howrey LLP, also took issue with China's focus on local competition.

"International best practice would say you should look out for consumer welfare, not for the welfare of other competitors," Taladay said in an email.

The Ministry of Commerce said on Wednesday that it had negotiated with Coke on terms to reduce the competition, but the regulators thought Coke's suggestions weren't good enough.

The Ministry said that since the anti-monopoly law was launched on August 1, it's received 40 applications and decided upon 24 of them, and approved 23 without conditions.

Rules and regulation aside, China's stance on Huiyuan seems less to do with competition and more with brand and image protection.