Chinese officials, Coke start talks on juice company

Beijing — The Coca-Cola Co. and Chinese regulators have begun talks on the company’s $2.4 billion bid to acquire domestic juice maker Huiyuan, but a new anti-monopoly law could scuttle the deal, industry analysts say.

China’s Commerce Ministry said last week it would enforce anti-monopoly rules when it reviews Coca-Cola’s bid, which experts said should happen within several months. If Beijing approves the deal, it would be the largest-ever foreign takeover of a Chinese company.

Coca-Cola’s offer will be reviewed “based on market economy principles and the law opposing monopoly, but supporting regular market operation,” ministry spokesman Yao Shenhong told journalists.

The Atlanta-based beverage giant met with Commerce Ministry officials and is “working with relevant authorities following the process for securing the required approvals,” said Kenth Kaerhoeg, a company spokesman based in Hong Kong.

The chief obstacle is likely to be anti-monopoly laws that took effect last month and could be used to argue that the acquisition would damage the interests of consumers and competitors, analysts said.

“Coke picked a bad time for this deal,” said Li Su, president of Beijing consulting firm H&J Vanguard Research.

Government regulators are likely to be concerned because Coca-Cola is China’s top beverage producer and acquiring Huiyuan “would be deadly for mid-range and smaller beverage companies,” he said.

The Chinese government has invested heavily in recent years to help some brand-name Chinese companies compete with established multinational firms.

The deal “is difficult because it involves an examination of the new anti-monopoly laws and regulations protecting famous domestic brands,” said Mei Xinyu, an economist at the state-run Academy of International Trade and Economic Cooperation in Beijing.

Other Chinese experts predict that Beijing will allow the deal.

Huang Dejun, president of Beijing consulting firm Orient Agribusiness, said Huiyuan’s total share of juice sales in China is “less than 8 percent … so we don’t think the purchase would give Coke a monopoly.”

Coca-Cola spokesman Kaerhoeg said commenting on the regulatory approval process “would be inappropriate.”

But he cited market data collected by Canadean, an independent firm that tracks the beverage industry. According to Canadean, the combined juice sales by Coca-Cola and Huiyuan “would be below 20 percent” of the total Chinese juice market, Kaerhoeg said.

Huiyuan is China’s largest juice maker and sells as much as half of China’s pure juices, a category where demand has grown rapidly in recent years. But it offers fewer nectars and juice drinks, which can contain small amounts of juice.

Coca-Cola sells no pure juices in China but holds 9.9 percent of total juice sales in the nation, according to Canadean data.

Coca-Cola’s offer to buy Huiyuan’s stock at roughly three times its previous market value was motivated by rising demand for fruit drinks in China.

Between 2001 and 2007, the total value of fruit juice sales in China more than tripled, pushing into soft drink sales, according to Shanghai-based market research firm Access Asia.