Investor Shudders

The Coke-Huiyuan deal was the first rejected by authorities for failing to meet standards of the new anti-monopoly law. And the decision came at a sensitive time for Chinese investors seeking opportunities abroad. For example, some feared the decision would compromise ongoing reviews of several proposed acquisitions by Chinese companies in Australia.

Ironically, just as Coca-Cola was rebuffed, Chinese government officials and scholars had been criticizing some developed countries for using legal or administrative means to restrict foreign investments and imports during the global recession.

And just a day before the ministry’s decision was announced, a World Bank report ahead of a G-20 summit in London pointed out that 17 of the world’s 20 major economies had imposed 47 restrictive measures on foreign trade, hurting the interests of other countries.

Against that backdrop, the failed Coke-Huiyuan deal was used by some foreign governments and investors as a sign that protectionism had reared in head in China, too. 

John Frisbie, chairman of the U.S.-China Business Council, urged the commerce ministry to increase the transparency of its antitrust reviews procedure, arguing that more openness was needed to maintain confidence among global investors.

But China dismissed the critics and noted that, since the anti-monopoly law’s enactment, 29 cases had been registered for review and 24 of them had passed it.

Chen, the commerce minister, said China’s policy in encouraging foreign investment had been consistent. The proposed Huiyuan decision had nothing to do with discouraging foreign investment in China, he said.

Shang Ming, general director of the Anti-monopoly Department, said in an article March 24 that the rejection was based on an interest in guaranteeing an open and competitive juice market in China -- not to protect Chinese brands.

Comeback Challenges

Huiyuan’s stock value plunged nearly 50 percent after the merger was rejected. Market analysts said they were pessimistic about chances for a rebound to previous highs. They also predicted re-financing difficulties for the company, saying a good strategic partner at a good price would be hard to find.

As a result, Zhu as well as Danone are seeking ways out of their Huiyuan stakes. Sources close to Zhu told Caijing the company chief is seeking new strategic investors for possible stock transfers.

“We talked to Pepsi, Uni-President (a Taiwan-based foods group) and other companies while negotiating with Coca-Cola,” said a Huiyuan board member. “We’ll continue the talks.”

Meanwhile, Huiyuan is struggling. Teng Wenfei, a food and beverage analyst at the firm Shanghai Security, warned in a recent report that the failed deal left Huiyuan short of cash.

Zhu’s mobile phone was turned off for days after the March 18 announcement.

The future is uncertain for key management posts left empty when senior executives quit Huiyuan to make room for Coca-Cola successors. Also unclear is the fate of plans for Minute Maid to be produced on Huiyuan’s production lines, and for new products previously scheduled for launch in the first half 2009.

“We lost direction,” said a Huiyuan staff member.  

In addition, Huiyuan has withdrawn some of its investments in agricultural efforts and halted several projects. Zhu had planned to switch focus to upstream businesses, investing 1.2 billion yuan in fruit and vegetable production in Hubei and Hebei provinces as well as Ningxia Hui Autonomous Region. These projects were signed in the name of Huiyuan Group and mainly financed through pre-payments based on stock transfers of its Hong Kong-listed company to Coca-Cola.

A source said Huiyuan has run into a number of bottlenecks in areas such as marketing, sale channels and management. Its small brands are fighting for market share, and its sale network in northern China is weak.

A senior executive at Huiyuan told Caijing that Zhu faces huge challenges.

“On the one hand, he has to form a new management and pump up morale,” the executive said. “On the other, he should be prepared to confront fierce competition in downstream markets.

“He has to work at it.”