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Coke Halted by Chinese Puzzle


New antitrust law stalls juice company takeover.


Alice's Adventures in Wonderland has nothing on the Chinese government.

Coca-Cola (KO) is eager to complete its planned $2.5 billion takeover of China Huiyuan Juice Group and vows to do "whatever it takes to facilitate this process."

However, China's state television says the deal must comply with the new anti-monopoly law that took effect August 1.

Just one thing: Beijing has released no details of what's required for compliance.

Talk about falling down a rabbit hole, eh? Apparently, China's new anti-monopoly law can mean anything, recalling this insight from Humpty Dumpty:

" 'When I use a word," Humpty Dumpty said in rather a scornful tone, "it means just what I choose it to mean - neither more or less.'

|'The question is,' said Alice, 'whether you can make words mean different things.'

'The question is,' said Humpty Dumpty, 'which is to be master - that's all.' "

In July, Carlyle Group, a U.S. investment firm, ended its 3-year effort to buy a stake in Xugong Group, a Chinese maker of construction equipment. Carlyle confronted regulatory resistance and public concerns about the sale of a Chinese company to foreigners.

Such objections go both ways. Members of Congress objected to China National Offshore Oil Company's $18.5 billion bid for Unocal, citing anti-trust and national security concerns. CNOOC withdrew its been in August 2005. Chevron (CVX) later acquired Unocal for $18 billion.

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Does this make sense, given the fact that China is the most rapidly expanding market in the world? Or one in which foreign automakers like Honda (HMC) and Toyota (TM) build cars in the US?

Coca-Cola has been doing business in China since 1979, has advertised heavily to gain market share and was a major sponsor of the Beijing Olympics.

China's new law on mergers and acquisitions says deals will be blocked if competition is compromised, but doesn't define the level of market share considered unacceptable.

China's regulators have 30 days to issue a decision after receiving a formal application for the deal. However, the government can conduct additional reviews, extending the deadline up to 150 days.

It's not hard to understand why Coke is eager to acquire China Huiyuan Juice Group: it claims about 40% of a huge and growing market. By some estimates, consumer spending in China is growing at 20% or greater a year.

Today's study question: Are members of the Chinese government any shrewder than some members of Congress when it comes to foreign acquisition?

As Alice told the Hatter, "I've had nothing yet, so I can't take more."

The Hatter replied, "You mean you can't take less; it's very easy to take more than nothing."

No positions in stocks mentioned.
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