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

Over the past 30 years, Coke has invested $1.6 billion in the Chinese Market and has good reasons for doing so.  China is Coca-Cola’s fastest growth market and its third biggest market (after the US and Mexico) says Muthar Kent, Coca-Cola’s chief executive officer in the article “Coca-Cola to invest more than $2 bln in China over next three years” from SINA English.  The article noted globally, Coke posted a five per cent growth in the fourth quarter of 2008 with both sparkling and still beverages, but in China, it posted a 29 per cent gain (19 per cent for the year as a whole).  This represents the largest percentage increase in more than five years (21 consecutive quarters).  Compared to Coke’s North American market, their annual report showed that sales declined by 1 per cent in 2008.  

This $2 billion investment is not the only big move Coke is pursuing in China.  Last September, Coke announced its intention to purchase China Huiyuan Juice Group Ltd, China’s leading pure juice maker. China Huiyuan captures about 42 per cent of China’s fruit juice market. The offer is not final, as according to Anti-Monopoly laws, the deal has to be approved by the Ministry of Commerce.  While there are some tensions rising due to nationalistic pride, because if this deal goes through, it would be the largest acquisition of a domestic company by a foreign firm, a decision is expected by the end of the month.

Coke is not the only beverage giant to show an interest in China.Pepsico announced plans in a November 2008 press release to invest $1 billion in China over the next four years.  As well, Japan’s Asahi Breweries, Ltd. paid $667 million for an almost 20 per cent stake in Tsingtao Brewery Co., China’s biggest beer company in January.  Of the two beverage giants, in China, Coca-Cola represents 54 per cent of the soda market, and Pepsico 31 per cent, this is according to Euromonitor International, a research firm.

Photo by maestropastelero