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Failed Coke-Huiyuan deal a lesson to learn

(chinadaily.com.cn)
Updated: 2009-04-03 16:26

Second Thoughts

From Coca-Cola's perspective, buying Huiyuan was a chance to penetrate China's seductive fruit and vegetable juice segment, in keeping with its global strategy of diversifying beyond its traditional carbonated drinks stronghold. China's fruit and vegetable juice market grew at a tempting 15 percent rate last year to $2 billion, even as global demand for carbonated drinks fell. Coke already claims over half of China's soft drink market, and around a 10 percent share in the fruit and vegetable juice market, but has yet to make inroads selling pure juice.

While the $2.4 billion bid for Huiyuan may have made sense at the time, that price now looks steep in light of the current global financial crisis. Coke board members' opposition has reportedly mounted. Despite a show to the contrary, for Coke, the dominant emotion triggered by China's decision to reject its bid may have been relief.

What caused China's Ministry of Commerce (MOFCOM) to let the foreign giant off the hook at the expense of a prominent Chinese entrepreneur? The regulators justified their decision on the grounds that the buyout would have an unfavorable effect on competition. "The concentration would have narrowed the room for the survival of medium and small-sized domestic juice firms, creating an unhealthy impact on the competitive structure of China's juice beverage market," MOFCOM said. Consumers could have faced higher prices and lower choice as a result.

From the beginning, the deal had been plagued by objections couched in nationalist rhetoric, and a poll by Sina.com found that over two-thirds of the 120,000 respondents disapproved of foreign investments in Chinese companies. Eighty percent supported MOFCOM's rejection of the bid.

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