Ventures Dialogue

Last week I wrote a post on Coca-Cola’s efforts to gain a stronger presence in China with its bid for the 17 year-old China Huiyuan Juice Group (CHJG), the country’s largest juice company.  Coke is interested in CHJG because while Coke has captured a sizable portion of the carbonated beverage market, its fruit juice line is not as strong.  Last Wednesday, Chinese officials rejected Coke’s offer under its anti-monopoly law.  In a statement (in Chinese), the Ministry of Commerce cited the need to protect consumers and preserve competition as reasons for rejecting the bid.  Some are saying however, the new law allows the government to protect national brands.  It has been estimated, but not confirmed, that the two companies together would control around 20 per cent of the juice market. 

While the Ministry’s decision did come to some as a shock, the decision could have longer lasting effects on China.   The day after the deal’s rejection was announced and reports that Coke might abandon efforts all together, shares of CHJG dropped almost 23 per cent before trading was eventually halted.  The shares fell 42.2 per cent in total before regaining some ground, and ended the day at pre-offer, September 2008, levels.

A Chinese-Australian deal could be affected as well.  Australia is said to be reviewing a $19.5 billion investment offer from Chinalco, a Chinese state owned aluminum company, in Rio Tinto, the world’s second largest mining company.  Like with Coke, negativity is mounting against the deal in Australia, especially around nationalistic grounds.  This may be backlash from the rejection of the Coke deal as some view it as an apparent disconnect between Chinese state owned companies buying, or in this case proposing deals, around the world, but China not allowing the same approach when dealing with foreign firms wanting to invest in China.  This past November when Anheuser-Busch (American) and InBev (Belgium) merged, China consented with the condition that both companies’ holdings in domestic Chinese breweries must remain static.  Busch’s 27 per cent holding in the Chinese Tsingtao, was essentially liquidated in January “after what is presumed to be pressure from the government”, this according to an article from Economist.com. 

For further reading, check out this article from The Washington Post. 

Photo by xiaming