Coca-Cola Monopoly Concerns China

Amber Butler-Davis
Staff Reporter

In August 2008, China’s most anticipated anti-monopoly law was finally introduced; it was only thirteen years in the making. This law will provide an inclusive framework that will help regulate competition and prevent monopolistic behavior.

Despite its use of vague language, there are still many unanswered questions such as which authority will be in charge of implementation and also there is an air of uncertainty regarding its exact applications. But apart from these questions, the law has been received well. Many law firms and observers have said it is a positive development and it will definitely be a step forward in helping China with international practices while increasing fair competition in the country.

Coca-Cola’s recent bid for China Huiyuan Juice will be the first deal to be reviewed under the new law. The deal is being closely monitored by the M&A community and this will help give everyone a clearer idea of how the new law will actually be implemented.

Coca-Cola offered to buy China Huiyuan Juice in early September for $2.3 billion. Those involved in the process mentioned that the key to a speedy approved deal will in fact be the definition of the market that will be most affected by the deal and the submission of extensive documentation that must include details such as the impact on the competition.

This deal in particular had to determine whether it would be the whole beverage market that would be affected or only the juice or cola sections. A legal source that would like to remain un-named said that whether we take pure juice or cola separately or take an overview of both markets. In the end, Coca-Cola’s take over of Huiyuan juice will in evidently generate monopoly concerns. But, when put into context with the whole soft drink market, the monopoly concerns will be significantly less.

In the concerns of the documentation, the legal source did suggest that the notifying company should indeed work with highly experienced lawyers when it comes to submitting the required documents. If the information you provide is in a clear and concise format, this will help dramatically when forming a rational definition of the relevant market. It will also decrease the amount of time that the Ministry of Commerce (MOCOM) takes to reach a final decision.

Coca-Cola’s legal adviser is Skadden, Arps, Slate, Meagher & Flom while Huiyuan Juice has appointed Freshfields Bruckhaus Deringer.
In the Anti-Monopoly Law, clause number 23 instructs the notifying companies to submit a total of five documents. These documents include, an extensive report on the competition situation in the relevant market in question, this report is extremely important when determining an outcome of the review.

The legal source explained that is the relevant market defined in the report is too large, it could actually delay the MOCOM to review it. However, if the market outline is too small, the MOCOM could actually block the deal because of monopoly concerns.

An official of MOCOM commented on the market competition report and said that it should be quite detailed but carefully measured. The report should include an analysis of barriers to the market entry and also a breakdown of the market share. In a nutshell, the more detailed and complete the report is the better of it is to succeed.

The MOCOM explained how they have often had to ask for extra documentation because the initial report has not had enough depth to it. A Shaghai lawyer, who has experience in antitrust notification, said that supplementary documentation requests are the main reason why most of the antitrust reviews are delayed by the MOCOM.

Since the new law has only just been hatched, the rules, guidelines and processes attached to it are still being a work in progress. Also, its effectiveness on the Chinese M&A activity can not be completely estimated yet.

Therefore, Coca-Cola is being watched like a hawk at the moment, in the hope to give some insight into the future application of this legal development.