The Mergers that Died in China

Amid international takeovers and merger deals propagating through China and the rest of the world, it is important to remember which deals never made it to the signing table.  China’s anti-monopoly law came into effect in August 2008 and has since denied several large foreign purchases of Chinese companies.

Leaving a Bad Taste around The World

One of the largest purchases that was denied by regulators was a takeover attempt by US based Coca-Cola, which would have bought one of China’s largest juice makers, Huiyuan Co.   The deal was set to be valued at $2.4 billion; however, regulators denied the deal, claiming that the merger would create too strong of a company within the Chinese juice market.  Huiyuan and Coca-Cola’s products currently compete side by side.  To contrast, the deal would have been similar to a Pepsi-Cola and Coca-Cola merger within the United States.

A Much Larger Deal Goes Unnoticed

Almost in a direct 180 of the previous policy, Inbev’s purchase of Anheuser-Busch went almost unnoticed in China.  The two compete side by side in China’s beer market; however, Anheuser-Busch owns the number one brewery in China, which grabbed the notice of regulators.  Intense discussions eventually made it so the merger could be completed; however, some local Chinese breweries now owned by Inbev would have to be spun-off to complete the full merger.  Eventually an agreement was met and the two were allowed to merge and compete on the Chinese mainland.

What Grabs Regulators Eyes?

The language in the law is open for interpretation and has a very liberal slant that allows the government to step in wherever necessary.  The law also lays a few guidelines for purchases that must be reviewed including anti-competitive agreements between companies and those that involve vertical alignments of various industries.  Also included are agreements between larger, monopolistic firms to fight off competition, as well as mergers that may restrict competition within China.

Certain Elements of the Law

If the two parties in a merger have revenues greater than 10 billion yuan worldwide or 2 billion in China, or the two earn more than 400 million yuan in China, the regulators must approve the decision.  The guidelines are horribly strict; virtually all publicly traded international firms fall within the guidelines for what must be approved by regulators.

If you enjoyed this article, please subscribe to our free stock market newsletter and receive a 10-day email course on successful stock market strategies