On March 18, 2009, the Chinese Anti-Monopoly Bureau of the Ministry of Commerce (“AMB”) rejected Coca-Cola’s bid to acquire Huiyuan Juice Group, China’s largest beverage company. This was the AMB’s first rejection of a pre-merger filing under the Anti-Monopoly Law (”AML”) enacted in August 2008. The AMB was apparently concerned that Coke would be able to leverage its dominant position in the Chinese carbonated beverage market to dominate the juice market.
Coke had planned to leverage Huiyuan's distribution network, brand name, and bottling resources to accelerate its expansion in China's juice market. Huiyuan is China's largest manufacturer of fruit juice drinks and would have complemented Coke's Minute Maid brand.
With the AMB's decision, Coke faced the decision of how to proceed in the Chinese market. For the time being, the company has decided to forego acquisitions in the juice market. Instead, Coke will try to organically grow Minute Maid by investing $2 billion in new bottling plants and its sales and distribution network. Coke just opened its thirty-seventh bottling plant in China. Coke remains bullish on China.
Implications For Mergers And Acquisitions In China
For now, Coke's decision to pursue organic growth makes sense. Because the Huiyuan acquisition is the first deal to be blocked under the AML, there is still little sense of what criteria the AMB will apply in approving or rejecting acquisition. Coke could pursue another acquisition, but such a move could meet the same fate as the Huiyuan deal. Allowing concerns about how the AMB might decide another acquisition to dictate strategy makes no sense. Coke has taken the right attitude by dusting itself off and pursuing another path to growth in the Chinese market. As the application of the AML develops, and the reasons for approving or rejecting deals become clearer, Coke may try again to acquire a Chinese fruit juice company.
Beyond the Coke situation, the decision will give pause to other companies from pursuing attractive Chinese targets. AMB rejected the deal on the grounds that Coke would be able to restrict competition in the juice market. Such reasoning is consistent with how the European Union competition authority decides mergers and acquisitions. If this was the AMB's reasoning, dominant players in China should think carefully about moving into related markets through mergers or acquisitions.
Moreover, Huiyuan was a famous domestic brand. AMB's was apparently worried that the acquisition would result in the dilution of the Huiyan brand, although AMB did not explicitly state this during the review process. This may suggest that AMB will consider the symbolic significance of the acquisition target. However, because the AMB is not required to explain in detail the reasons for its decision, only its approval, rejection, or conditional approval, we do not not know what role any particular factor played in the Coke decision.
Not all companies have Coke's resources to expand organically. Coke already has an established position in the Chinese fruit juice market. It's not starting from scratch. If you're not Coke, then growing organically will be a much slower and more uncertain process.
Douglas Y. Park
Twitter: @DougYPark
