China blocks $2.4bn Coke bid for Hui Yuan Juice

China’s Ministry of Commerce has rejected the takeover of China Hui Yuan Juice, one of China's leading beverage companies, six months after Coca-Cola first made an offer. US private equity firm Warburg Pincus owns a minority stake in the company.

Global beverage giant Coca-Cola has pulled out of its bid for Hong Kong-listed China Hui Yuan Juice after the Chinese Ministry of Commerce rejected the deal. In a statement on its website, the Ministry of Commerce said that Coca Cola’s bid “was still being reviewed, with reference to an anti-monopoly law that took effect last year”.

A spokesman said that the Ministry of Commerce would consider whether the acquisition would disturb competition or harm rival enterprises. 

 “We are disappointed, but we also respect the MOC's decision,” Muhtar Kent, the president and chief executive officer of Coca-Cola, said in a statement. “We put a tremendous effort into providing all the relevant materials to the MOC to ensure that they had all the information available and understood the transaction,” he added.

China’s anti-monopoly law came into effect on 1 August 2008. Coca-Cola offered to acquire the Chinese juice maker in September 2008. At the time, the offer was subject regulatory approvals from the Chinese government. 

Coca-Cola offered shareholders HK$12.20 ($1.58; €1.17) per share and the same amount for outstanding convertible bonds and options. It had received undertakings from three shareholders for the acceptance of the offers, representing about 66 percent of Hui Yuan shares. 

The three sellers included Zhu Xinli, Hui Yuan’s founder chairman, who owns 36 per cent, Danone, a French food and beverage company, which owns 23 per cent, and Warburg Pincus, which has a stake of 6.8 per cent, according to the Financial Times. Warburg Pincus invested in Hui Yuan in 2006.

Had the deal gone ahead will full acceptance of Coca-Cola’s offers, it would have likely been the biggest foreign takeover of a Chinese company. 

The failure of this deal is not without precedent. Last year, The Carlyle Group pulled out of a $375 million investment in Xugong Group Construction Machinery, which would have given it an 85 percent stake in the company. The two parties had come to an agreement in October 2005, but regulatory approvals were not forthcoming even three years later despite Carlyle reducing the size of the stake it would purchase to a minority 45 percent. That deal was foiled as Beijing tightened regulations surrounding foreign investments aimed at protecting strategic state assets from falling into foreign hands. 

Warburg Pincus declined to comment.