China's worries over juice brand may sink $2.4bn Coca-Cola deal

Coca-Cola may abandon its proposed $2.4bn takeover of China's leading juice company after anti-trust regulators signalled it would have to relinquish the China Huiyuan Juice brand after the acquisition, according to people familiar with the matter.

The planned deal, the largest ever foreign takeover of a Chinese company, is the first major test of the country's revamped anti-monopoly regime which was given extra teeth last August. Its failure would be a blow to multi-national companies seeking to make acquisitions in China.

Regulators in Beijing have been assessing the anti-trust implications of the deal since it was announced last September and recently told the US company that approval depended on a number of conditions.

People familiar with the matter said that China's ministry of commerce did not want Coca-Cola to acquire the brand rights of Huiyuan, a Hong Kong-listed company that boasts a 42 per cent share of the domestic market in pure fruit juices.

The demand is regarded by some as a potential deal breaker because Coke offered to pay a huge premium partly on the basis of Huiyuan's strong brand image.

Coke's offer is HK$12.20 a share in cash, almost treble that of Huiyuan's last closing share price prior to the announcement of the deal. The shares closed down 2 per cent yesterday at HK$10.30, reflecting ongoing concerns that the deal will not be completed.

The ministry of commerce also wants Coke to agree to a number of other conditions, including future investments in the country. “If Coke can't own the Huiyuan brand it is difficult to be optimistic about a successful completion of this deal,” said one person close to the matter.

However, others cautioned that a solution acceptable to all sides could yet be reached, although they admitted that time was fast running out. Coke declined to comment.

The ministry this week said that it had until Friday to decide whether to extend the probe, or approve or reject the application. The deal has a “longstop” date of March 23, after which Coke has the right to renegotiate the terms.

The selling consortium comprises Zhu Xinli, Huiyuan founder chairman, who owns 36 per cent of the company and France's Danone, which owns 23 per cent. Warburg Pincus, the US private equity firm, owns 6.8 per cent.