Coke's struggle to buy a Chinese juice company offers a hint of the hurdles cropping up worldwide
With much fanfare last September, Coca-Cola (KO) announced plans to buy China Huiyuan Juice Group for $2.4 billion, the largest acquisition ever of a Chinese company by a foreign corporation. Coke promptly filed for approval of the deal with antitrust regulators at China's Commerce Ministry. For six months—an eon in corporate deal time—the Ministry reviewed the transaction. On Mar. 18, the Ministry rejected it, saying the combined companies would be too dominant.
As one of the first big transactions to draw scrutiny under a new anti-monopoly law that took effect in China in August, the Coke-Huiyuan deal drew lots of attention. "The world is waiting with bated breath to see what's going to happen," said George L. Paul, an antitrust attorney at White & Case in Washington, earlier this year. "Are acquisitions going to get blocked or delayed as a result of the Chinese law?"
Similar questions are arising elsewhere, as well. A decade or so ago, about the only antitrust law anyone cared about was that of the U.S. Then the center of gravity for enforcement switched to the European Union. But now competition cops have gone global. According to a White & Case survey, 115 governments currently regulate mergers, up from 68 just five years ago. "Ten years ago it was an unusual deal that involved a foreign merger clearance in addition to the U.S. Now it's almost the unusual deal that doesn't," says Anthony W. Swisher, an antitrust attorney at Washington's Akin Gump Strauss Hauer & Feld.
so many overseers
At the least, that presents challenges for those doing deals. For example, Pfizer's (PFE $68 billion merger agreement with Wyeth (WYE) announced in January requires approval from antitrust regulators in the U.S., Europe, Canada, China, and Australia. With so many overseers, says Swisher, "you have to worry about the most restrictive jurisdiction controlling whether the deal goes through or not."
Enforcement officials from around the world have met regularly since 2001, through an organization called the International Competition Network. Together, they try to standardize approaches to merger review. And countries that are adopting or overhauling antitrust laws often get input from U.S. lawyers. No jurisdiction is too small: In January, the American Bar Assn. submitted comments to the Paraguayan Congress, which is considering an "In Defense of Competition" bill."
Still, the proliferation of antitrust enforcement regimes has added complexity and uncertainty for multinational businesses. Nestlé bought Brazilian confectioner Chocolates Garoto in 2002, but to this day Brazil's monopoly agency, known by its acronym CADE, is fighting in court to reverse the deal on the grounds that the combined companies will control too much of the country's chocolate market. Nestlé, however, has already integrated its operations with Garoto.
chocolate feels the antitrust heat
Nestlé, along with chocolate purveyors Kraft Foods (KFT), Mars, Hershey (HSY), and Cadbury, are also feeling enforcement heat on another front: The companies face investigations and lawsuits in Germany, Canada, and the U.S. for alleged price fixing. In recent years, competition watchdogs in various countries have significantly stepped up coordinated efforts to combat cartels. Kraft said it is not aware of any proceedings in North America, but it is cooperating with a German Federal Cartel Office probe. Mars said it does not comment on details of legal proceedings but plans to defend itself vigorously. Nestlé and Hershey did not respond to requests for comment.
At the moment, China remains the great enigma when it comes to antitrust enforcement. That's partly because its antimonopoly law is so new. But the statute also states that its purpose is not only "protecting fair market competition," but also "promoting the sound development of the socialist market economy."
As review of the Coke-Huiyuan deal drags on, observers express growing concern about what factors are being weighed. The combined operations of the companies would control less than half of China's juice market. But Coke's planned purchase of Huiyuan, one of China's better-known consumer brands, had generated plenty of popular uproar. "It is not really clear where the competitive issues are," François Reynard, the Beijing-based head of the Asian antitrust practice of Allen & Overy, said in January. "You have so many signs that seem to suggest that national feeling is something the Ministry of Commerce or higher levels of government may take seriously into consideration." In its statement nixing the deal, the Ministry said a combined Coke-Huiyuan could hurt smaller juice makers and raise prices for consumers.