China on Wednesday rejected a $2.4bn Coca-Cola deal that would have been the country's biggest foreign takeover, stoking fears of protectionism and warnings the decision could scupper Beijing's push to invest in overseas mining companies.
China's ministry of commerce ruled against Coke's proposed acquisition of Huiyuan Juice, the country's leading juice maker, on competition grounds, saying the move would hurt smaller domestic companies and limit consumer choice.
Bankers and lawyers denounced the move as a protectionist measure that would also have negative implications for Chinese investment abroad, notably Chinalco's proposed $19.5bn tie-up with Rio Tinto, the Anglo-Australian miner.
Barnaby Joyce, a maverick Australian politician leading a fight to block the Chinalco investment on nationalist grounds, said China's "welcome" rejection gave him "ammunition to articulate my beliefs".
Mr Joyce told the Financial Times: "The sentiments being expressed in Australia are the same as the ones that the Chinese have expressed in their rejection of Coca-Cola."
Publication of the decision followed a report in the Financial Times that the regulator had demanded Coke relinquish the Huiyuan brand after the acquisition, a request that was refused. People familiar with the matter said the ministry's thinking reflected wider worries in Beijing about public opposition to a foreign company taking over a leading brand.
"This is an entirely political decision," one senior dealmaker in Hong Kong said. "The antitrust laws have been stretched in order to appease the sentiment of populist Chinese websites."
Muhtar Kent, Coke president, said the company was "disappointed" but would respect the decision. He said that Coke would focus on boosting its existing brands in what is its fastest-growing global market.
The Coke filing was the first big test case under China's revamped antitrust laws, which were beefed up last August, and competition lawyers criticised the single-page ruling for being short on reason and explanation.
"This decision will have a potentially adverse effect on China's outbound investments," said Lester Ross, head of the Beijing office of the WilmerHale law firm.
"People suspicious of China's motivations will say that China is not playing fair by stopping foreign acquisitions in an innocuous industry that has no economic or national security implications."
Coke had offered HK$12.20 a share in cash, almost treble that of Huiyuan's last closing price prior to the announcement of the deal in early September. Trading in its shares were suspended on Wednesday morning at HK$8.30, after falling 20 per cent following the FT report.
The ministry's decision is a huge setback to the selling consortium, which comprises Zhu Xinli, Huiyuan founder chairman, who owns 36 per cent of the company, and France's Danone, which owns 23 per cent. Warburg Pincus, the US private equity firm, owns 6.8 per cent.
Copyright The Financial Times Limited 2009
