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China scraps Coca-Cola’s takeover of Huiyuan Juice

“Beijing wants to protect its own brands.” — Renee Tai, food and beverage analyst at CIMB-GK Securities (HK)

Coca-Cola Co’s US$2.3 billion bid for China Huiyuan Juice Group Ltd (匯源果汁) was blocked by the Chinese Ministry of Commerce on monopoly concerns.

“After the merger, Coca-Cola may use its dominant position” to limit competition in China’s juice market, the agency said in a statement on its Web site yesterday.

The takeover would have been the biggest foreign takeover of a Chinese company.

The decision will cost Coca-Cola, the world’s biggest soft-drink maker, the opportunity to boost its share of China’s juice market to more than 20 percent. China’s fruit and vegetable-juice sales may rise 20 percent to 97.1 billion yuan (US$14 billion) this year, almost double the rate for carbonated drinks, according to Euromonitor International.

“Beijing wants to protect its own brands,” said Renee Tai, Hong Kong-based food and beverage analyst at CIMB-GK Securities (HK) Ltd. “Drinks are not politically sensitive products, but it’s purely political.”

An acquisition of Huiyuan would have helped Coca-Cola chief executive officer Muhtar Kent maintain the company’s lead over Pepsico Inc as US soda sales slow. Coca-Cola’s sales by volume rose 19 percent last year in China and declined by 1 percent in North America.

Coca-Cola had 15 percent of China’s packaged-beverage market in 2007 compared with Pepsi’s 6 percent, according to Euromonitor. Coca-Cola controlled 54 percent of the Chinese soda market to Pepsi’s 31 percent. Coca-Cola had 10 percent of the fruit and vegetable-juice market while Pepsi’s share was too small to be counted.

Coca-Cola proposed to purchase Huiyuan for at least US$2.3 billion in September, in what would have been the Atlanta-based company’s biggest overseas acquisition. The cost of the deal could have risen to HK$19.6 billion (US$2.5 billion) depending on whether Huiyuan bonds are converted into shares, the Hong Kong-listed juice maker said.

Coca-Cola said on March 6 it plans to invest US$2 billion in China over the next three years to win more of the country’s 1.3 billion consumers. The beverage maker said it had already spent US$1.6 billion investing in China since returning in 1979.

Apart from Coca-Cola, Sprite and Minute Maid, the Atlanta- based beverage maker also sells Yuan Ye, a green tea drink, in China. The carbonated drinks market may grow 11 percent to 74 billion yuan this year, Euromonitor said.
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