China to insist on principle of market-oriented economy on Huiyuan-Coca-Cola uni

As Coca-Cola Co. seeks to acquire China's largest juice company Huiyuan, a spokesman for the Ministry of Commerce said the government would insist on the principals of market-oriented economy under the legal process.

In an interview with Xinhua on the occasion of the 12th Xiamen International Fair for Investment and Trade in the southeast Fujian Province, spokesman Yao Shenhong said the ministry "would review the case of Coca-Cola's acquisition of Huiyuan" and it was against monopoly while supporting "normal economic activities."

"Once we receive the application we will start the antitrust review," Yao told Xinhua.

Coca-Cola Co. said on Sept. 3 it had offered to buy Huiyuan for the equivalent of 2.4 billion U.S. dollars in cash. If successful, it would be the second-largest acquisition in the company's history.

The Atlanta, Georgia-based company said the offer needed to be approved by the Chinese government.

The prospects of approval were unclear with much speculation emerging. In July, China turned down an offer by the Carlyle Group,a U.S.-based private equity company, to acquire Xugong Group Construction Machinery Co.

Both the Office of Anti-monopoly Investigations and Department of Treaty and Law in Ministry of Commerce, and Coca-Cola public affairs director Li Xiaoyun confirmed the company hadn't submitted the application as of Wednesday.

Li said Coke was preparing the required materials and data for the application.

"The review of anti-monopoly has nothing to do with suspicion of monopoly but were simply required when the related companies reached the criterion in the laws," said Li, who also goes by the name Brenda Lee.

"This is a very normal process," she told Xinhua in a phone interview. "We simply submitted the materials according to the antitrust laws."

Any concentration should be reviewed when it has a global trade volume of 10 billion yuan (about 1.46 billion U.S. dollars) and the total domestic trade volume of the two sides exceeds 400 million yuan in the previous financial year, according to the Anti-monopoly Law of the People's Republic of China implemented onAug. 1, and the Guidelines on Anti-monopoly Filings for Mergers and Acquisitions of Domestic Enterprises by Foreign Investors issued in March last year.

The examination should happen when the total trade volume of all the related companies exceeded 2 billion yuan in the last financial year and the trade volume of the two sides in China exceeded 400 million yuan.

The law was welcomed by senior leaders of the American Chamber of Commerce in Shanghai. Coca-Cola was one of its members.

"Frankly, we welcome the new anti-monopoly law as it brings transparency to acquisition cases in China. We welcome the transparency," said AmCham chairman Norwell Coquillard at the Xiamen Fair.

"We understand the environment we invest in. We had estimated the market share of Huiyuan and Coca-Cola, which had reach the criterion, so we understand it has to be done," said Norwell, also the Cargill Investment (China) Ltd president.

Since the antitrust law was a new law, Coca-Cola's case would test the regulations, he noted.

His view was shared by Coca-Cola's Li. "Accurate laws clarify the investors concept of the procedures. It could also help to create a healthier investment environment and encourage more foreign investment."

The case would also help China to detail the law for future protection of some important domestic markets, said Li Fei, a Xiamen University economics professor.

The acquisition was considered to be a big step for the soft drink giant to explore its non-carbonated drinks market in China when the rate of carbonated drinks share had slowed.

Last year, Coca-Cola launched its Minute Maid juice brand in China as part of its expansion into the nation's fruit and vegetable drinks business. The category was valued at 10.6 billion U.S. dollars in 2007, while carbonated drinks were 7.4 billion U.S. dollars, according to Euromonitor figures.

"This acquisition will deliver value to our shareholders and provide a unique opportunity to strengthen our business in China, especially since the juice segment is so dynamic and fast-growing in China," said Muhtar Kent, Coca-Cola president and chief executive officer (CEO). The acquisition would be the 55-year-old American-born Turk's first major move since taking the reins as the company's CEO in July.

Coke offered a figure of an exclusive soft drink review from Methodology Canadean Ltd, a British investigation company for the drinks market, showing the market share would be lower than 20 percent if the marriage was a success.

Currently, Huiyuan has a domestic market share of 13.95 percent among the 134 large drink producers in China, according to figures of Beijing Orient Agribusiness Consultant, Ltd. (BOABC), a professional consulting firm specializing in agri-business consulting services to the food business.

If successful, Coca-Cola would overtake France's Groupe Danone, which held a 16.3 percent share of China's soft drinks market in 2007, as the country's top brand with a 17.9 percent market share.

The marriage would be a challenge for domestic juice companies and might change the whole strategic situation of the juice industry, said Huang Bin, president of the Quanzhou branch of the Agricultural Bank of China in Fujian Province.

Experts believe that despite the anti-monopoly examination, the case also faces the worries of Chinese people about the disappearance of a famous domestic brand. Many domestic news reports had the headline "Coca-Cola drinks Huiyuan Juice."

"The brand Huiyuan has been developed in China for many years, and has grown on Chinese people's emotional connection to the brand. That's why we cherish the brand, " said Li whose employer had been doing business in the country since 1979. It was also a major sponsor of the 2008 Olympic Games in its fourth largest market country.

She emphasized Coca-Cola would preserve and develop the Huiyuan brand, with the company's resources of international marketing and product research for the Chinese customers.

In addition, there would be no competition between Huiyuan and Coke, because the latter's business was a subsidiary to the former, she said. Coca-Cola's Minute Maid juice and Qoo were juice drink brands while Huiyuan's strength was in pure fruit juice where it had a 46 percent market share, according to ACNielsen figures.

More hurdles had also emerged to disturb the potential union.

Public opinion has gone against Huiyuan founder and president Zhu Xinli of late, with many saying Coca-Cola was controlling him.

Some said Zhu behaved differently from before on the case as he had said, "I didn't sell Huiyuan when I was in trouble in 2004. I'll sell it now because they offer a good price."

Coca-Cola denied the blame, saying Zhu's words had not been influenced by the company at all.

"President Zhu is an experienced entrepreneur. My company respects him a lot. What he said was decided by himself," Li said.

Despite the hurdles, Li confirmed three major shareholders whoheld more than 60 percent of Huiyuan stock, including Huiyuan, Danone and U.S. private equity firm Warburg Pincus, had approved the international marriage.