CHINA BAN ON COKE TAKEOVER CRITICISED

China's rejection of Coca-Cola's planned $2.4bn takeover of Huiyuan Juice is based on questionable logic and could be retaliation for previous US protectionism, say competition lawyers.

China's ministry of commerce (Mofcom) stunned bankers, lawyers and investors on Wednesday by blocking the deal, which would have been the largest foreign takeover of a Chinese company. The decision was based on competition grounds, namely that Coke might abuse its dominant position in China's fizzy drinks industry by imposing bundled sales of juice drinks.

Mofcom also said the deal would have had an adverse impact on China's smaller domestic juice makers.

The single-page ruling has prompted a barrage of comment from competition lawyers, who say China is using the anti-monopoly regime – beefed up last August – to thwart politically-sensitive foreign investment.

Lovells, the law firm, said: “There are question marks as to the logic behind such reasoning as is provided in the decision.” Kirstie Nicholson, a Beijing-based lawyer with Lovells, said concerns about bundling could have been dealt with by imposing behavioural conditions or penalties should it occur.

However, some lawyers said other anti-trust regimes have used concern over bundling to try to stop deals, and that China's evolving anti-trust rulings would mature. An example was the European Union trying to block General Electric's takeover of Honeywell in 2001, a ruling that was later overturned in court.

Allen & Overy, the London-based international law firm, criticised the explicit defence of Huiyuan's smaller rivals, noting that “the fundamental goal of competition law is to protect competition, not any select group of competitors”.

John Taladay, partner in the Washington practice of Howrey, said the anti-trust unit within Mofcom was not an independent agency like in the US and the European Union, and was therefore “not immune to political pressure”. He added: “You have to wonder if [the decision] isn't pay-back for resistance that Cnooc faced when it tried to acquire Unocal.” China National Offshore Oil Corp withdrew its 2005 bid for Unocal, the US oil company, after a political backlash in Washington.