Coca-Cola’s friendly US$2.5 billion bid to buy China’s biggest juice maker is emerging as a test of whether Beijing will allow foreign companies to buy homegrown businesses — or force entrepreneurs to serve its vision of creating national economic champions.
Huiyuan Juice Group Ltd (匯源果汁), little known outside China but with an estimated 42 percent of its pure juice market, could become a victim of its own success if Beijing deems it too big and famous to fall into foreign hands.
Huiyuan’s green cartons of orange, apple, pear and grape juice are ubiquitous in Chinese grocery stores. Acquiring the company would expand Coke’s presence in a major market. For Huiyuan, which welcomes the deal, being acquired would give it access to experience at product development and marketing.
The bid, announced on Sept. 3, has ignited a firestorm of criticism in China, where the state-controlled press and schoolbooks nurture grievances over colonialism. Angry comments posted on Web sites call Huiyuan founder Zhu Xinli (朱新禮) a traitor and demand that Beijing reject the deal.
The government routinely defies public opinion when deciding on job cuts at state companies or other painful steps deemed necessary for China’s overall good. But Chinese leaders might share the public’s distaste about Coke because the bid collides with their goal of building major Chinese companies to dominate domestic industries.
Beijing is likely to reject Coca-Cola Co’s bid for the very reasons Huiyuan is an attractive target — it is successful and well-known, warned Donald Straszheim, a US investment banker who specializes in China.
“While the shareholders on both sides might approve, we do not see significant reasons why the authorities would approve this deal, allowing a major acquisition by a foreign firm of a highly visible domestic company,” Straszheim, vice chairman of Roth Capital Partners, said in a report to clients.
Others say Coke might be able to win approval — and survive a review under China’s new anti-monopoly law — if it can make a case that the deal will benefit China. The US suitor says it will retain the Huiyuan brand and invest to develop it.
“If Coke offers a really great amount of money, nationalism will yield to the money,” said Conita Hung (熊麗萍), director of equity markets for Delta Asia Financial Group (匯業財經集團) in Hong Kong.
A Coca-Cola spokesman, Kenth Kaerhoeg, said managers have met with Chinese regulators but declined to comment on the review process.
A rejection would be a blow to Huiyuan, which welcomed Coke’s offer and said major shareholders, including French dairy group Danone SA, approved it. Huiyuan defended the deal as being in the best interests of the “Chinese economy as a whole.”
Beijing issued rules in 2006 that bar foreign ownership of companies in power generation, weapons and other industries, but fruit juice makers are not mentioned.
Foreign takeover bids have run up against similar protection in other countries.
A Chinese oil company dropped a bid to buy US oil producer Unocal Corp. in 2005 after US critics claimed the deal would hurt national security. A US buyer took over Unocal, paying shareholders less than the Chinese bidder offered.
China’s own companies are stepping up acquisitions abroad. Lenovo Group acquired IBM Corp’s personal computer unit in 2005. More recently, Aluminum Corp of China Ltd (中國鋁業) bought a stake in London-based Rio Tinto Group and Ping An Insurance Co (平安保險) bought a stake in Fortis NV, Belgium’s biggest financial services company.