Legal Implications of Coke-Huiyuan

飞雪寒冰

In a watershed move on March 18, the Ministry of Commerce rejected Coca-Cola’s proposed US$2.4 billion acquisition of China Huiyuan Juice Group, asserting that the case violated China’s anti-monopoly law. This is the country’s first rejection of a merger or acquisition since the law took effect on August 1 of last year.



Some anti-monopoly experts remain skeptical about the power of a law that has been regarded as a “paper tiger.” Specifically, experts are concerned about whether the case followed rigorous legal processes and standards that would have helped China further define its merger and acquisition regulations.



But it looks as though they were disappointed.

飞雪寒冰

Anti-monopoly law detailed neither review process nor standard. The law called for a two-phase review process, the second more detailed than the first. As for the standards used to judge the alleged monopolies, the law provided only six factors to consider. And when the curtain was raised on the Coke-Huiyuan case, MOFCOM was still soliciting opinions on regulations for reporting and reviewing business concentration.  



The lack of clear guidance and detailed rules may have delayed the case for at least two months, as Coca-cola had to submit supplementary material four times between November 19 and its original application date, September 18. Complicating the matter, the price Coca-cola offered in September was far below the price in November.



MOFCOM said in its report that it consulted several related government agencies, trade associations and companies during the review process. But the process should have been more transparent and should have solicited more opinions during the review in order to develop balanced anti-monopoly measures and standards for the future.

飞雪寒冰

Legal experts believe that it is crucial to define what industry the alleged monopoly belongs to through the review process. This is the most contentious part in most monopoly cases, as defining the market of a merger and acquisition – the soft drink or juice drink market, for example – would dramatically impact the verdict. Both companies should provide their opinions in their applications and MOFCOM should also have its own definition, legal experts said.



The Ministry of Commerce published a statement draft on January 7 this year that defines markets first by a demand-based analysis, then if necessary by a supply-based analysis, and finally, for complicated circumstances, by a method known as “Small but Significant Not-transitory Increase in Price,” or SSNIP.



The first two methods are more subjective, mainly used in simple cases that require only qualitative analysis. The SSNIP is used internationally as an objective measure of a company’s market.

飞雪寒冰

A source close to the situation who asked to remain anonymous told Caijing that as complicated a case as the Coca-cola case was, however, MOFCOM did not use SSNIP measurements to define the two companies’ markets. Moreover, the ministry’s final report did not provide a detailed appraisal or a rational for the rejection.



This raised many doubts among the public. Some even regard the rejection as China’s first case of protectionism. The European Union Chamber of Commerce asked China to publish legal review details, rejection reasons, and evidence immediately.



Anti-monopoly law was established to prevent and stop monopolistic activities. Many experts warned soon after the law went into effect that it could be used as a government tool to interfere with the markets, a double-edged sword which may also repress regular trade. China should be cautious, they said.