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Byline: Michael Weiand Tony Munroe
China has rejected Coca-Cola's planned EUR2.4billion (pounds 1.6billion) acquisition of top juice maker Huiyuan Juice - saying the deal would have been bad for competition.
The acquisition by Coca-Cola would have been the largest buyout of a Chinese company by a foreignrival, but was rebuffed in what is sure to be seen as another sign of the protectionism that has been mounting globally as much of the world is gripped by recession.
"The message is particularly significant given Coke's good corporate-citizen status so visible during the high-priority Beijing Olympics project, as well as its pledge of EUR2billion of additional investment in China," said Credit Suisse analyst Carlos Laboy.
Observers said China's ruling on Coke could cut both ways in that Chinese companies that have been making increasingly high-profile acquisitions abroad may run into trouble.
Australia's Foreign Investment Review Board is considering three big investments by Chinese state-run companies in its mining sector.
In particular, political opposition to Rio Tinto Ltd's planned pounds 13.6billion tieup with Chinese state-owned Chinalco has been intensifying, and on Wednesday the Australian Senate said it would launch its own inquiry into foreign investment.
"It indicates that foreign acquisitions of Chinese companies, particularly those with prominent brands, will not be regarded favourably by the Ministry of Commerce," said Lester Ross, managing partner with the Wilmer Hale law firm in Beijing.
"And that, conversely, indicates that Chinese companies seeking to make acquisitions overseas may encounter an adverse reaction in those markets, if foreign companies are essentially frozen out of the Chinese marke," he said.
Ross said it was very unlikely the Chinese ministry would have made its decision without higher political clearance and, if that is the case, "it's entirely natural to anticipate that other countries will regard acquisitions by Chinese companies in a very similar way."
China's Ministry of Commerce rejected the transaction under an anti-monopoly law enacted last year, saying in a statement that Coca-Cola's changes to the deal were insufficient to allay its concerns.
Coca-Cola, the world's largest soft drink maker, said it held a long-term view of the Chinese market and would now focus on increasing its sales of existing brands and innovating with new ones.
"We are disappointed, but we also respect the MOC's decision," said Chief Executive Muhtar Kent in a statement.
Gary Bradshaw, a portfolio manager at Dallas-based Hodges Capital Management, called the rejection "a minor setback" for Coca-Cola rather than "a major slap in the face".
"They'll probably regroup and try to go at it from a different angle," Bradshaw said.
Hodges owns Coke shares among its pounds 525million in assets under management.
Given the deal's high multiple and Huiyuan's weakening growth outlook, Stifel Nicolausanalyst Mark Swartzberg said he saw the news as positive.
Swartzberg noted that Coke had suspendeditsshare repurchase programme when the dealwas announced, and said he now believes it will be resumed.
A Coca-Cola spokesman said it was premature to comment on buybacks.
JPMorgan analyst Selina Sia said the two companies would have held a combined 40 per cent of China's fruit juice market, and the ruling was not a surprise. …