March 18 (Bloomberg) -- China rejected Coca-Cola Co.’s $2.3 billion bid for China Huiyuan Juice Group Ltd., saying the biggest foreign takeover of a Chinese company may stifle competition in the country’s drinks market.
The Ministry of Commerce said it blocked the deal because it may lead to a “dominant position” for Coca-Cola, limiting competition and making it more difficult for smaller rivals to survive. “This could force consumers to pay higher prices and have less variety of products,” it said in a statement on its Web site today.
The decision to block Coca-Cola’s biggest overseas acquisition will cost the world’s largest soft-drinks maker the opportunity to boost its share of China’s juice market to more than 20 percent. Coca-Cola’s sales by volume rose 19 percent last year in China and declined by 1 percent in North America.
“It’s a surprise decision for me,” said Qiu Dongrong, consumer analyst at CSC Securities HK Ltd. “We didn’t expect this will affect competition.”
Huiyuan Shares Slide
Huiyuan fell 19 percent to HK$8.30 in Hong Kong, the most since it started trading in February 2007. That’s 32 percent below the HK$12.20 per share offer by Coca-Cola. The shares were suspended 13 minutes after the 10 a.m. start of trading.
Kenth Kaerhoeg, a Hong Kong-based spokesman for Coca-Cola, and Natalie Tam of IPR Ogilvy, Huiyuan’s public relations firm, didn’t immediately return calls seeking comment. Dana Bolden, Coca-Cola spokesman, declined to comment when interviewed before the ministry’s announcement.
“Beijing wants to protect its own brands,” Renee Tai, Hong Kong-based food and beverage analyst at CIMB-GK Securities (HK) Ltd., said before the decision was published. “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 U.S. soda sales slow.
China’s fruit- and vegetable-juice sales may rise 20 percent to 97.1 billion yuan ($14 billion) this year, almost double the rate for carbonated drinks, according to Euromonitor International.
Market Share
Coca-Cola controlled 52.5 percent of the Chinese soda market by volume in 2008, compared with Pepsi’s 33 percent, according to Euromonitor International. Coca-Cola had 12 percent of the fruit-and vegetable-juice market while Pepsi’s share was 1.4 percent. Huiyuan had an 8.5 percent share of that market while controlling 33 percent of the pure-juice market.
Coca-Cola proposed to purchase Huiyuan for at least $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 ($2.5 billion) depending on whether Huiyuan bonds are converted into shares, according to the Hong Kong-listed juicemaker.
The deal would have been the U.S. beverage maker’s biggest overseas acquisition.
Coca-Cola said on March 6 it plans to invest $2 billion in China over the next three years to win more of the nation’s 1.3 billion consumers. The beverage maker said it had already spent $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, according to Euromonitor.
China’s commerce ministry had given conditional approval for InBev NV in November to complete its $52 billion takeover of Anheuser-Busch Cos., barring the acquirer from raising stakes in existing units or buying shares of new brewers.
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