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Coca-Cola’s regulatory application for the purchase of Chinese juice maker China Huiyuan has been submitted to the Ministry of Commerce’s (MOC) vice minister, overseer of antitrust and foreign investment review, an MOC official not directly involved in the deal told dealReporter. This action could pave the way for Chinese antitrust approval, the official claimed.
“If necessary, the vice minister could still ask the State Council to look at the deal and then make the decision. Uncertainties still exist,” said a Beijing-based antitrust expert who claimed close relations to the MOC.
Agreeing with the expert, a source close to Coca-Cola said while being confident of the deal obtaining eventual approval, he could not comment on specific timing.
Both the source and the expert said the MOC would likely not move forward on the deal before 16 Mar 2009 when the “Two Conferences” [National People’s Congress, or NPC; and the Chinese People’s Political Consultative Conference, or CPPCC] are held in Beijing.
If in fact the approval is forthcoming it is likely to happen following this event but before the long stop date on 23 March 2009, the source and the expert concurred.
“Usually, Chinese regulatory bodies such as the MOC and the National Development and Reform Commission [NDRC] would do nothing but listen to representatives’ criticizing during the Two Conferences. So no important decision would be made during this sensitive period,” said the source close to Coca-Cola.
If the MOC expects to allow the deal, it would be meaningless to drag on the approval after the long stop date, said the expert.
However, deal conditions have yet to be discussed between the regulatory body and the involved parties, the expert further revealed. “If the MOC is going to approve the deal with conditions, the conditions would have at least been indicated or flagged up by now. But at present, nothing related has been talked about or negotiated,” said the expert. He added that the possibility of the deal being approved without any conditions or completely vetoed also exists.
The source acknowledged the deal would be more likely to see approval with conditions but that it would not take too long to negotiate.
Pointing to Inbev’s Chinese antitrust clearance process for the Anheuser-Busch merger, the source said it took a day and a half for the MOC and the buyer to reach agreement on the conditions. “If the Coca-Cola/Huiyuan deal fails to get through, I don’t know what kind of other deals can,” said the source.
According to the expert, while he thought it unlikely for the MOC to veto such a high profile deal, it would also not be difficult for the MOC to find an excuse or explanation to veto the deal.
The deal will also have a greater chance of seeing approval should it not become a major topic of conversation among representative at the Two Conferences, both the expert and the source agreed.
In contrast, the deal could mirror the failure of the Xugong/Carlyle deal, the expert added. Carlyle, the US private equity fund, hoped to acquire an 85% stake in the Jiangsu-based Xugong Group in October 2005. The deal was broadly discussed during the Two Conferences in March 2006 when the deal had almost obtained all the necessary approvals, pending only MOC approval. The deal finally collapsed in 2008.
A source close to one of Huiyuan’s direct competitors said they had decided not to oppose the deal publicly, but the same could not be said for behind closed doors. “We will submit our objections via our own channel to the decision maker,” the competitor source said, declining to reveal any detail about the channel.
According to the expert, recently, the focus of the deal has shifted from regulatory approval to Coca-Cola’s commitment on the deal. “I heard pressures coming from Coca-Cola’s shareholders questioning the overvalued offer price to Huiyuan,” said the expert, adding that it could be a strategy for the involved parties to push the MOC approving the deal.
A second source close to Coca-Cola said the company’s CEO would be in China this week to meet with Huiyuan executives in an effort to reaffirm their committement “It’s simply not a bid you can walk away from. You’ve made an offer and have an obligation and the condition was regulatory approval so if that comes through, you have to go ahead. There’s no choice really,” he said. “In the long run, I still think it’s a good deal even though the market’s movement make it look a bit awkward for them to be paying so much in cash,” he added.
This comes amid reports last week pointing to rising voices within Coca-Cola’s board against the deal due to the global economic slump.
But, Coca-Cola spokesperson Kenth Kaerhoeg assured that there have been no substantial changes with the transaction as it awaits regulatory approval. “The deal still has full support of Coca-Cola’s board,” he said. The regulatory review process is ongoing and the deal is still on track, he added.
Meanwhile, Coca-Cola’s Chinese headquarters will move from Shanghai’s Pudong New Area to another Shanghai district Minhang this week, the first source revealed. Recently, there has been concern over the possibility of multi-national companies moving out of China, withdrawing capital investment. Intel’s move out of Shanghai to Chengdu caused broad press coverage. The first source added Coca-Cola’s move has been discussed for a long time but it is unlikely to trigger any negativity.
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