Coca-Cola’s proposed acquisition of Huiyuan rejected

The Ministry of Commerce of China has quashed The Coca-Cola Company’s proposed acquisition of China Huiyuan Juice Group, one of China’s largest juice manufacturers. The decision - the first prohibition decision issued by the ministry since the coming into force of the Chinese Anti-monopoly Law - has given rise to concerns among foreign companies wishing to expand and strengthen their foothold in China by acquiring local brands or companies. It is a warning sign for similar, strategic cross-border M&A transactions in China, which have been on the rise recently despite the weak outlook for the world economy.

The ministry rejected the proposal on the grounds that the deal was anti-competitive in nature. It cited Article 28 of the new law, which prohibits a concentration of market control that has or may have the effect of eliminating or restricting competition.

Moreover, the ministry was of the view that Coca-Cola’s acquisition of Huiyuan would significantly strengthen its dominance and control over the local juice beverage market, given that:

• Coca-Cola already owns the beverage brand Minute Maid; and
• Huiyuan dominates China’s premium juice market, with a share of over 40%.

Coca-Cola was prepared to pay a hefty premium for the famous Huiyuan brand. The deal fell through because the ministry requested that Coca-Cola divest itself of the HUIYUAN mark, which was the very reason why it had pursued the acquisition in the first place.

The rejection raises concerns for brand owners, as the ministry reasoned that Coca-Cola’s acquisition of a famous brand would result in anti-competitive/exclusionary effects. On the one hand, it is arguable that the decision reflects China’s growing dedication to the protection of its well-known local brands, which may be good news for both Chinese and foreign brand owners. On the other hand, it appears that the ministry disregarded the fact that the products sold under the MINUTE MAID and HUIYUAN marks do not compete with each other. Consequently, it is clear that foreign industry players and multinational companies wishing to acquire local Chinese brands with a substantial reputation to build up their brand portfolio will first have to face China's local protectionism.

Ai-Leen Lim, Bird & Bird (Hong Kong) and Bird & Bird IP (Beijing) Co Ltd (Beijing), Hong Kong and Beijing