Huiyuan and Anti-monopoly law (反垄断法 )

About two weeks ago, there was a strong buzz here in China about a recent ruling by China's Ministry of Commerce to reject Coca Cola's bid to acquire Huiyuan, China's largest natural juice brand.

Now, the reason why this case was closely followed was because it would have been the largest foreign acquisition of a Chinese company to date. The case brought into focus a new Chinese anti-monopoly law that was first implemented in August 2008 and has since been modified with more provisions and regulations to provide greater transparency for the anti-trust investigation process.

The transaction was supposed to happen in this way: Coca-Cola would buy Huiyuan's issued shares and any convertible bonds for $2.3 billion and also committed to invest in China over $2 billion over the next three years.

But the review committee decided this transaction would prevent potential competition in China's juice market given that Huiyuan has about 40% of that market and this would boost Coca Cola's share in the market to over 20%.

So what's the big deal that Coca-Cola got its bid rejected? The big deal is how China's Ministry of Commerce responded.

In their official announcement ( here in Chinese http://www.mofcom.gov.cn/aarticle/b/c/200903/20090306108617.html ) MOC gave no real legal basis for their decision but instead insisted that the acquisition would negatively affect the domestic market. Basically, the announcement reads that the effect of consolidation on national economic development would be deleterious.

The thing is, though, in a previous transaction where InBev acquired Anheiser-Busch (http://archives.chicagotribune.com/2008/nov/19/business/chi-wed-brf2-inbev-nov19) the regulations MOC imposed were less stringent and got the OK for the transaction.

In a word, China's Anti-monopoly law is very new and this has brought and will bring lots of questions about how MOC makes its decisions. Some say Coca Cola's failed bid shows that the Chinese government is serious about its anti-monopoly law. Others contend it's just pure protectionism at its best and, if anything, it was how China could get back at the U.S. for rejecting their acquisition of the American oil company, Unocal, back in 2005 (nanpin.china.com.cn/english/2005/Aug/137165.htm ).

Whatever the viewpoint is, the idea is this: anti-monopoly in Chinese law is changing and being revised every day and as this happens there will be less foreign acquisitions and a stronger stance taken by China on this front.