Ministry of Commerce discloses details of failed Coca-Cola deal

The decision blocking Coke's acquisition of Chinese made Huiyuan fruit juice company registered in Cayman Islands, is based on the regulator's independent review focusing only on the market competition implications of the deal, said the Chinese Ministry of Commerce on Tuesday.

Whether Huiyuan is a Chinese brand or not is not under consideration by the anti-monopoly review, nor will the decision affect or bring any change to China's foreign investment policy, said Yao Jian, spokesperson of the Ministry.

The Commerce Ministry announced its decision rejecting the deal on March 18.

According to China's Anti-monopoly Law which is in effect from August 1, 2008, mergers and acquisitions are subject to anti-monopoly review if the deal gives a market player a controlling position over another player and revenues of the parties in the deal reach the threshold of the application mandate in the law.

In the Coke-Huiyuan case, Coke would take the majority or even 100 percent of Huiyuan's stake and their revenues far exceeding the threshold of the application.

The correct definition of relevant markets is key to the judgment of anti-monopoly cases. Economic analysis shows that the fruit juice, represented by Huiyuan, is rarely a possible substitute of carbonic acid drink, represented by Coke. While the three types of fruit juice under different concentration --- 100 percent, 26 percent to 99 percent and less than 25 percent --- can be more easily substituted. Therefore, the relevant market refers to the fruit juice market in this case.

However, both the carbonic acid drink and fruit juice are non-spirit soft drinks. The deal will give Coke the competence of transmitting its dominance on the carbonic acid drink market to the fruit juice market by bundling sales or other offerings excluding market competition. Then consumers will have fewer choices at higher prices as the competitiveness of other fruit juice makers is severely impaired or even deprived.

Brand is the main barrier of the fruit juice market as this product faces consumers directly. If potential competitors are de facto barred from the juice market by Coke's possession of the two leading brands of the market through its acquisition of Huiyuan, the market will hardly eliminate or restrict Coke's possible abuse of its dominance.

Combination of market operators normally has mixed implications on the market. It reduces business costs and improves efficiency but may have negative impact on market competition. The Law provides that the authorities can require the applicants propose solutions to problems in a certain deal so that fair market competition can be protected.

The parties involved in this case failed to prove that the positive impact of the proposed deal on the market competition outweighs the negative impact. Coke's remedy plan is not enough to eliminate the negative impact.

That is a market access question which must be answered by the anti-monopoly review. It is a serious issue of competition and is definitely a different concept from the so-called national brand issue, said a spokesperson.

He highlighted that the Ministry of Commerce was neither disturbed by any factors irrelevant to the competition law nor affected by so-called public nationalist sentiment as reported by some foreign media. Extensive investigations and hearings have been made during the review process.

The spokesperson reiterated that China welcomes foreign investors and encourages them to participate in competition in China. Mergers and acquisitions by foreign investment are common. The Commerce Ministry has approved 4,966 such deals since the provisional regulations on M & A of Chinese companies by foreign capital were promulgated in 2003.

He stressed that the Anti-monopoly Law applies equally to monopolistic behaviors of either Chinese companies or foreign companies.It does not target multinationals,he said.

He concluded in the statement that the decision of blocking Coke's buyout of Huiyuan aims to protect effective, fair competition of China's fruit juice market. It does not affect or mean any change to China's policy towards foreign investment.

Source: People's Daily Online