Coca's bid for Huiyuan rejected by China's Gov't

March 18 -- China’s rejection of Coca-Cola Co.’s $2.3 billion bid to buy the country’s largest juice maker leaves the company to compete with PepsiCo Inc. the hard way, by building sales of existing products.

China’s Ministry of Commerce barred Coca-Cola’s purchase of China Huiyuan Juice Group Ltd., saying it might have used its “dominant position” to push up prices and limit choices for consumers. Coca-Cola would have roughly doubled its juice market share with the deal, said Jason Pride, director of research for Haverford Investments.

“It would have given them better access to China when they are going head-to-head with Pepsi,” said Pride, whose Radnor, Pennsylvania-based firm has $5 billion of assets under management including shares of Coca-Cola and PepsiCo. “It slows Coca-Cola down in China.”

Coca-Cola and PepsiCo are in a race to buy juice and dairy-beverage brands in developing countries to diversify beyond soft drinks and win customers by catering to local tastes. PepsiCo and its chief bottler agreed last year to pay $1.4 billion for a 75.5 percent stake in Russia’s largest juice maker, OAO Lebedyansky and are seeking to buy the rest.

Coca-Cola, based in Atlanta, controlled 52.5 percent of the Chinese soda market by volume in 2008, compared with PepsiCo’s 33 percent, according to market research company Euromonitor. Coca-Cola had 12 percent of the fruit- and vegetable-juice market, while Huiyuan had an 8.5 percent share. The Chinese beverage company controlled 33 percent of the nation’s pure-juice market.

“We will now focus all of our energies and expertise on growing our existing brands and continuing to innovate with new brands, including in the juice segment,” Chief Executive Officer Muhtar Kent said today in a statement.

Pulpy Orange

Minute Maid Pulpy Orange is one of Coca-Cola’s best-selling juice drinks in China, where it was developed before being introduced in 2004. Sales were expanded to India in 2007.

Coca-Cola plans to invest $2 billion in China over the next three years as part of its attempt to win more of the nation’s 1.3 billion consumers, it said this month.

The investment plan includes a $90 million technology center that opened in Shanghai March 6. Coca-Cola’s proposed investment is 25 percent more than the $1.6 billion it has spent in China since returning in 1979.

China’s denial of the acquisition is the first under an anti-monopoly law that’s been criticized for a lack of openness.

“Having two companies with way under 25 percent market share come together and try to make efficiencies is not anti-competitive,” Pride said. “Protectionism is an evil beast that destroys overall global economic prospects.”

Coca-Cola rose 20 cents to $41.65 at 4 p.m. in New York Stock Exchange composite trading. The shares have declined 8 percent this year. PepsiCo climbed 22 cents to $49.47.

(Bloomberg)