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Move to stymie bid for Huiyuan

By Wen Xin (China Daily)
Updated: 2008-09-16 10:07

A group of domestic soft drink makers will reportedly submit a proposal to the Ministry of Commerce in a bid to block the takeover of market leader Huiyuan Juice by Atlanta-based Coca-Cola.

Opponents of the proposed transaction are worried that a Coca-Cola/Huiyuan combination could dominate the market and dictate prices.

Coca-Cola has offered to acquire a 100 percent stake in Huiyuan for $2.3 billion, triple the Chinese company's capitalization based on its closing share price on the previous trading day. The ministry is reviewing the acquisition bid.

However, rival domestic producers said they would rather see Huiyuan sold to a consortium of local companies rather than to a dominant foreign player in the soft drink business.

Alternatively, they recommend selling Huiyuan's assets to Coca-Cola and auctioning off the brand to local companies. A third option in the proposal is to establish an investment fund to make a counter bid for Huiyuan.

Local beverage companies are worried that the deal, when it goes through, would give Coca-Cola a share of more than 60 percent in China's domestic juice market through Huiyuan's established sales and distribution network.

Industry analysts said effective distribution channels and a wide customer base are the lifeblood of the juice beverages business. A soft drink company needs large and fast turnover to survive the competition, they said.

Coca-Cola's proposed deal would pose a particular threat to smaller local juice producers, who may not be able to survive when it enters the domestic juice market.

For that reason, many local juice and beverage processors are reportedly backing the group's proposal.

A ministry spokesperson said last week that it would "support normal market behavior", but "oppose market monopoly". The spokesperson also confirmed that Coca-Cola had not applied to the ministry for anti-monopoly examination.

The 300 percent premium Coca-Cola has offered to pay for Huiyuan is widely seen as evidence of the increasing international recognition of Chinese brands' value.

In making the offer, Muhtar Kent, Coca-Cola's president, said: "Huiyuan is a long-established and successful juice brand in China and is highly complementary to the Coca-Cola China business."

Analysts are now speculating about the impact the acquisition would have on the fast-growing juice market. Processed juice sales account for about 10 percent of the beverage market and that share is expected to be 40 percent in the next few years.