China Denies Coke Acquisition

Highlights include The Coca-Cola Company (KO) and Coca-Cola Hellenic Bottling Company (CCH).

China Denies Coca-Cola’s Acquisition of Major Chinese Juice Co.

Today, the Chinese Ministry of Commerce announced that it has rejected The Coca-Cola Company’s (KO) proposed acquisition of China Huiyuan Juice Group Limited, a Hong Kong listed company which owns the Huiyuan juice business throughout China. Citing the anti-competitive effects of the acquisition, the decision reflects the enforcement of China’s strengthened anti-monopoly law and the internal political pressure of the Chinese government related to protecting indigenous brands from foreign control.

For The Coca-Cola Company, the strong performance of future key markets, like China, has mitigated volume concerns in North America. In 2008, unit case volume in North America declined 1%. Management is extending Coca-Cola’s reach in emerging markets not only through the introduction of water and juice products, but also through acquisitions.

For example, in early 2006 Coca-Cola bought a Serbian water bottler, and in March 2007 Coca-Cola, in alliance with Greece-based Coca-Cola Hellenic Bottling Company (CCH), bought out Multon, which controls approximately 25% of the Russian juice market. On September 3, 2008, The Coca-Cola Company made a $2.3 billion cash offer to purchase China Huiyuan Juice Group.

Coke’s management believed the acquisition of China Huiyuan Juice Group would have provided a unique opportunity to strengthen the company’s business in the juice segment in China. Now the Coca-Cola Company must shift its focus to building up its franchise in China through the support of existing local brands and the introduction of new innovative juice brands.

Management still plans to invest $4.4 billion over the next 3 years in the development of the Chinese market, in addition to the $1.6 billion it has already invested since 1979. However, without the ability to acquire China Huiyuan Juice Group, the process will cost more and take more time than previously estimated.

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