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Coca-Cola waiting for green light from govt

By Ding Qingfen (China Daily)
Updated: 2009-02-23 08:02

Source: National Bureau of Statistics, Photo by CFP and Graphics by Zhang Ye.

Coca-Cola's bid to purchase Huiyuan Juice, China's largest juice producer, is still under review for compliance with a newly drafted anti-monopoly law. A result is expected in March.

Most industrial experts predict the bid will pass the review, but nobody is certain.

The deal, if finalized, could benefit both beverage companies in the long-term.

Huiyuan, which holds as much as 42 percent of China's juice market, stunned observers at home and abroad by announcing in September 2008 that Coca-Cola, the world's largest nonalcoholic beverage company, intended to buy the Chinese juice behemoth for $2.4 billion.

The Hong Kong-listed juice producer said in its corporate announcement that Coca-Cola promised the brand, sales network and marketing team of Huiyuan will remain intact when the deal is finalized but the move generated strong opposition from both the Chinese public and local industry insiders, who feared a powerful Chinese brand would disappear and the domestic juice industry would be monopolized by a foreign company.

Customers are increasingly choosing fruit juice over soft drinks as the concept of healthy living becomes more popular in China. China's juice market has grown by 30 percent annually over recent years. And the growth potential is huge, as the annual consumption volume per person in China is less than 1 liter, compared with Russia, 30 liters a person, and the United States and Europe, 50 liters a person.

Huiyuan's leading position in the industry makes it a target of international operators trying to crack the market. The company set a bunch of records in February 2007 when it was listed on the Hong Kong exchange; its share price jumped around 66 percent and it raised HK$4 billion worth of funds on the first trading day.

Huiyuan grew into the top juice producer from a canned fruit company on the brink of bankruptcy in 1992 under the management of Zhu Xinli, Huiyuan's president and founder.

Several foreign companies have altered local brands and products after taking over Chinese companies in the last few years, which helped dampen local enthusiasm for the Huiyuan deal.

The anti-monopoly law, which took effect last August, says mergers must undergo an anti-monopoly review if any company involved in the deal has revenues of 400 million yuan in China or all companies in the deal have combined international revenues of 10 billion yuan.

Related readings:  Coca-Cola denies accusation of violating labor law in China  Coca-Cola seeks anti-trust nod for Huiyuan deal  Coca-Cola's bid for Huiyuan under review  Move to stymie bid for Huiyuan

In late September 2008 Coca-Cola filed the application for anti-monopoly approval with the Ministry of Commerce, which last December said it had registered the case and was investigating it. The ministry gave no timetable for the review process.

Huiyuan said late last December that obtaining approval from the commerce ministry is a precondition to the deal. The two companies signed an agreement valid for 200 days, expiring on March 23. Experts say the result will come out before the agreement expires.

"The review will probably get a nod," said Teng Wenfei, a beverage analyst from Shanghai Securities.

The deal comes at a time when Huiyuan's business is bottlenecked by low brand awareness in overseas markets, despite the company's dominant domestic position.

"Coca-Cola's already well-developed global marketing and sales network gives Huiyuan access to markets outside China," said Teng.

Coca-Cola said it planned to enter into the Chinese juice sector in 2002 but over the past few years many international companies, including PepsiCo and Danone have courted Huiyuan.

"We needn't make a fuss about the deal as it is beneficial for all," said Zhu Xinli.

A shrinking soft drink market is forcing Coca-Cola to look to other sectors and the deal, if finalized, would bolster the company.

"By purchasing Huiyuan, Coca-Cola would become the top juice maker overnight," said Teng.