China Scraps Coke's Bid For Juice Company

China rejects a $2.4 billion bid by Coca-Cola to buy the Chinese juice company Huiyuan. In the first test of a new anti-monopoly law, Beijing says the deal would have been bad for competition. The proposed deal was unpopular in China.

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MELISSA BLOCK, host:

Coca-Cola is tasting a bit of rejection. Beijing has blocked the company's $2.4 billion bid to buy a Chinese juice company, saying it would be bad for competition. As NPR's Louisa Lim reports, the move is being seen as another sigh of protectionism and economic nationalism amid the deepening recession.

LOUISA LIM: This was the day juice and the ownership of it truly became political.

(Soundbite of TV ad)

Unidentified Woman #1: (Mandarin spoken)

LIM: Huiyuan is China's top juice maker, riding its healthy image to a 42 percent market share. Coca-Cola, hoping to break into that market, offered $2.4 billion to acquire the business. But this was always more than just a deal. It would've been the biggest foreign takeover of a Chinese firm, also the first major test of China's new anti-monopoly law. And China blocked the deal from going ahead.

(Soundbite of TV news broadcast)

Unidentified Woman #2: (Mandarin spoken)

LIM: On the evening news, the Commerce Ministry said such an acquisition would have harmed competition, since Coke's dominant status would have led to consumers being forced to accept higher prices and fewer choices. Coca-Cola says it's disappointed. Coke spokesman Ken Kaerhoeg told NPR it's now clearer how China's Ministry of Commerce is interpreting the anti-monopoly law and the limitations that will put on other potential acquisitions. Antitrust experts agree.

Mr. JOHN CALLADAY(ph) (Partner, Howie(ph) LLP): I don't think there's any question that this would have something of a chilling effect for foreign companies looking to acquire in China.

LIM: John Calladay is a partner in the government antitrust practice of Howie LLP in Washington, D.C. He says China's not playing by the same rules.

Mr. CALLADAY: While I think they have tried to couch their decision in the appropriate language of international best practices, I do think it falls quite a bit short. I think their decision is based principally on factors that would have been weighed by other jurisdictions, but would not have been used as a basis for blocking a transaction in other jurisdictions.

LIM: One such factor cited by the Commerce Ministry, that the deal would hurt small and medium-sized Chinese juice firms - protectionism, in other words. Some observers believe the deal was stymied by politics and nationalism. When it was announced just after the Olympics, Huiyuan's chairman was pilloried as a traitor for selling off a national brand. And one online poll found 80 percent of respondents opposed the acquisition.

Mr. WANG JUBIN(ph) (Antitrust Lawyer): (Through translator) Public opinion surely has influenced the government's decision.

LIM: Wang Jubin is an outspoken antitrust lawyer working in Shanghai. He believes this decision has an element of payback for the troubles that Chinese companies have had making overseas acquisitions.

Mr. JUBIN: (Through translator) Some factors are Chinalco's current bid for Rio Tinto, and CNOOC's failed bid for Unocal. The Chinese government will enforce this same amount of protectionism as its counterparts.

LIM: Yet China's rebuff of Coke's billions could come at a price. While Beijing seeks to protect its domestic industry in the short term, this tit-for-tat mentality is likely to come back to haunt China's own firms as they extend their reach overseas.

Louisa Lim, NPR News, Shanghai.

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