Sunday, June 10, 2018

Coca-Cola's Huiyuan Bid: Protectionist Payback?

The instances where Chinese firms seeking to buy stakes in Western companies were rebuffed over "national security" concerns are well-known: CNOOC decided not to make a bid for American energy firm Unocal over lawmaker bellyaching. Huawei was discouraged from buying trifling bits of 3Com over the latter handling sensitive defence technologies.

Now, it seems Coca-Cola is testing the waters to see if American protectionism will be returned with its attempted purchase of Huiyuan Juice Company for the sum of $2.4 billion. (Huiyuan is the PRC's largest juice maker.) Something Coca-Cola needs to clear is the newly passed "Anti-Monopoly Law" in which foreign acquisitions of Chinese companies listed in Hong Kong require regulatory approval. The US firm filed just today. While this antitrust law purports to be about preventing the formation of monopolies, some view it as a way to safeguard Chinese firms from purchase by foreigners. Remember, foreigners cannot regularly buy "A" shares (or the majority of stocks) in the Chinese mainland. However, coursing matters through Hong Kong can be a route to get around this limitation, especially as quite a few PRC-based firms raise capital in Hong Kong.

Will Coca-Cola be turned down via the "Anti-Monopoly Law"? We'll soon see as the Chinese Ministry of Commerce will hand down its decision in a months' time. Also, you may laugh about there possibly being "national security" claims against purchasing a juice maker, but don't forget the French case of Danone's "yoghurt protectionism." To each his own protectionist folly.

Reuters has a backgrounder from a few days ago:

Coca-Cola, looking to make inroads into a pure-juice segment of the market it is absent in and shoring up its lead in the overall domestic beverages industry, is paying three times the market price for the Hong Kong-listed Chinese firm.

Some industry experts argue Beijing has no interest in killing a non-sensitive deal but others say a public outcry will have regulators scurrying to protect a beloved national brand.

Chen Yuan, a lawyer at legal firm Linklaters, argued the high-profile acquisition may tweak nationalistic sensibilities but the government is unlikely to kill the deal without good reason, partly because the world is watching...

Donald Straszheim, vice chairman of Roth Capital Partners, was skeptical the deal would be allowed, noting a regulation protecting "famous brands" from foreign acquisition.
Meanwhile, the Times of London mentions the vociferous discussion in China on whether this takeover would injure national pride:
Witness the current uproar in China over Coca-Cola's bid for the Huiyuan Juice Group, dubbed by protesting nationalists a “dragon head enterprise” that it would be “traitorous” to let pass into foreign ownership.
Although I am usually quick to offer an opinion when asked, I am unsure of the outcome of Coca-Cola's bid given today's topsy-turvy economic environment. Will China go into retribution mode for clear past instances of US protectionism or will it play along for now? Stay tuned.

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