Coke's Huiyuan bid hurdle political, not antitrust

SHANGHAI, Sept 5 (Reuters) - Political manoeuvring could threaten Coca-Cola Co's KO.N planned purchase of Chinese juice maker Huiyuan Juice Group Ltd 1886.HK, but the $2.5 billion bid is unlikely to fail on antitrust grounds, lawyers said.

The U.S. soft drinks group is paying three times the market price for a listed company registered in the Cayman Islands in what is a test case for China’s new antitrust law, which came into effect last August.

Though Huiyuan is the dominant brand in China’s fast-growing fruit juice market, that market remains fragmented. The company is also not a strategic oney in terms of national security, meaning the only possible regulatory hurdle would be from an antitrust review, they said.

“It’s not aerospace or defence or technology. The focus will be on the competition issue,” said Peter Wang, a partner at Jones Day. “China’s drink market is fragmented. The deal should pass.”

But regulators, facing a public outcry over the sale of what is a beloved domestic label to a big foreign company, could undermine the deal with lengthy delays, the lawyers said. Coca-Cola has 15.5 percent of China's soft-drinks market, crowded with players including Tingyi 0322.HK, Uni-president 1216.TW and PepsiCo Inc PEP.N, and has little business in the pure juice market, where Huiyuan controls a 40 percent share.

The planned acquisition will benefit consumers by creating a stronger competitor in China’s fruit drinks sector without disrupting market fairness, Wang said.

Chen Yuan, a lawyer at Linklaters, agreed that, while the high-profile acquisition may tweak some nationalist sensibilities among Chinese consumers, the government is unlikely to kill the deal without good reason, partly because the world is closely watching.

“The government needs to act reasonably in order to establish a solid reputation,” he said. “The result will not be too much of a surprise and should be in line with international practices.”

However, both lawyers said the government might take its time vetting the deal, which could threaten to derail it.


“The government may give itself more time to make a decision that would trigger strong public responses,” said Chen. “And there are always ways to make this process drag on by asking Coca-Cola to submit more materials.”

Jones Day’s Wang expected the review process to last at least 180 days. The purchase offer agreement, announced on Sept. 3, will expire in 200 days. Coca-Cola said on Friday it had yet to submit documents for antitrust reviews.

The deal, which would be the biggest takeover in China by a foreign company, has already triggered an online outcry.

In a survey by Chinese Internet portal, 82.3 percent of respondents opposed the transaction, while online chat rooms were filled with voices of concern that too many national brands are falling into foreign hands.

Research reports by investment banks Merrill Lynch and J.P.Morgan noted huge uncertainty over whether Chinese regulators would approve the deal.

“China wants to establish more local brands, so it would be very difficult for the transaction to obtain approval from China’s commerce ministry,” said Xiang Liping, head of the securities department at Delta Asia Financial Group.

Donald H. Straszheim, Vice Chairman, Roth Capital Partners, was also sceptical, noting a regulation protecting what China calls “famous brands” from foreign acquisition.

“We believe this deal will be rejected by the Chinese authorities and will not go through,” he said.

“The idea that Coke might have bought some more favorable consideration in business dealings in China as one of the 12 top worldwide partners of the Beijing Olympics we believe is of trivial significance.” (Additional reporting by Fion Li in Hong Kong; Editing by Edmund Klamann)