Converging Events

Timelines for the Huiyuan takeover plan and the government’s anti-monopoly initiatives nearly intersected, underscoring the significance of Coca-Cola’s move as a test for anti-trust regulators.

The anti-monopoly department was created just a few weeks before the Huiyuan-Coca-Cola match-up proposal was made public, a few weeks after the two companies launched formal talks, and a few days after the anti-monopoly law took effect last August 1.

The new law requires a two-phase review process, with the second step more detailed than the first. It sets six standards for considering whether a deal would create a monopoly. Additional rules for reporting and reviewing business concentration were still being discussed by ministry officials during the Huiyuan review.

The commerce ministry said Coca-Cola’s huge turnover of US$ 1.2 billion in 2007 in China and Huiyuan’s US$ 340 million turnover that same year had triggered the antitrust review, following rules set by the State Council for the Anti-monopoly Department.

Coca-Cola hired three law firms as legal consultants when talks with Huiyuan began in July. Lawyers helped Coca-Cola file a formal application for an antitrust review and, between September 25 and November 19, supply four batches of supplementary data requested by the ministry.

One of Coca-Cola’s lawyers told Caijing the U.S. company initially worried about its disagreements with Chinese authorities over the definition of the expression “relevant market.” At issue was whether different interpretations could lead to different ways of interpreting market shares, thus affecting the final verdict on whether a merger would create a monopoly.

Zhao Yanhong, deputy director of communications at Coca-Cola China, said “relevant markets” in his company’s eyes included the entire juice market -- 100 percent juices, nectars and fruit drinks. Based on 2008 statistics, a combined Huiyuan and Coca-Cola would control 20.3 percent of the Chinese juice market – a portion that Coca-Cola concluded would not hurt the market’s competitiveness. It also claimed no single company could dominate the Chinese market.

According to Patrick Chovanec, an assistant professor at Tsinghua University’s School of Economics and Management, the tie-up would not have been considered a monopoly in the United States or European Union. He said antitrust authorities would have approved the plan with limited review.

At first, the Chinese authorities’ market assessment agreed with Coca-Cola’s. Noting this as a positive signal, Coca-Cola and Huiyuan accelerated their preparations for a merger.