December 03,2008

MoC Checks Foreign M&A Concerns as Coke/Huiyun Starts Anti-Monopoly Procedure

By CSC staff, Shanghai
Foreign M&A in China in recent years has triggered at least concern over industry security, at worst economic nationalism. But the result of an investigation by the Ministry of Commerce (MoC) shows foreign companies�M&A activities in China have not harmed the country’s industry security.

Yang Yi, director of the MoC’s Bureau of Industry Injury Investigation (BIII) said earlier that as multinational’s acquisitions of leading domestic companies had generated such wide disputes, the MoC would make "the influence of multinational companies�M&A on industry security" a key topic of this year’s research.

BIII commissioned Chinese Academy of International Trade and Economic Cooperation investigator Wang Zhi’le to work on the topic. Wang Zhi’le said over a year the research team studied M&A cases and analyzed their influence on China’s industry security, investigating 22 key companies including Xuzhou Construction Machinery Group, Jiamusi Combine Harvester Factory, and Carlyle Group.

 Wang  said that the team‘s research pointed to the fact that, "M&A by foreign companies in China, and Chinese companies in other countries, are competitions among enterprises. Conflicts among all parties in M&A are competitions for equity, brand and market share between companies, and are not conflicts between nations." Wang added that as yet no overseas M&A case has threatened China’s industry security.

Coke and Huijuan

Coke’s acquisition of Huijuan Group, a major Chinese juice producer, is still a hot topic. Yesterday, the ninetieth day after Coke raised its purchase price offer, the two companies declared in a joint statement that they had submitted application to the Ministry of Commerce for approval according to the requirement of the Anti-Monopoly Law.

 

Wang Yi said MoC has not yet indicated whether it would approve the application. But Wang Zhi’le, as the government’s brain trust, believes the government should approve it.

Cases of M&A by foreign companies in China are increasing, and over 50% of multinationals�M&A efforts here go for more than $100 million, some having broken the $1 billion mark.    

China approved 1264 M&A actions by foreign companies in 2007, 3.34% of the country’s total. Investment involved in these cases reached $2.08 billion, an increase of 16.8% year on year, and accounting for 12.78% of total foreign investment in 2007. Energy production, machinery, consumption goods and food production, and financial services have been the hot areas.

Yang Yi said the government must pay attention to attempted multinational acquisitions in military and key manufacturing industries, as do other countries. It should also consider the development and competition stages of different areas, and should be especially careful in approving foreign M&A in industries in which domestic enterprises are weak and regional monopoly can be easily formed.

The Coke-Huiyuan deal is going through its anti-monopoly examination by the MoC and must be approved before March 23 next year, otherwise the deal may have troubles.

Coke bid $2.4 billion to acquire Huiyuan on September 23, 2008 and promised to keep the Huiyuan brand. The news triggered bitter debate in the market, some domestic beverage makers claiming it was a big step on the road to monopoly. Although the deal has gained support from over 60% of Huiyuan shareholders, due to the newly issued Anti-monopoly Law, its acceptance will be decided by supervisory departments.

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