Firms gauge China M&A prospects under new antitrust regime

Chinese authorities have blocked a $2.4bn (£1.7bn) bid by Coca-Cola to acquire Chinese beverage maker Huiyuan Juice Group, prompting concerns about the impact the decision will have on M&A in the region.

The deal, which would have represented the largest ever takeover of a Chinese target by a foreign company, was rejected in one of the first major tests of the country's recently-adopted antitrust law.

The deal saw Skadden Arps Slate Meagher & Flom representing Coca-Cola, fielding a team led by Hong Kong-based corporate partner Nicholas Norris and Shanghai-based M&A partner Gregory Miao.

Huiyuan, meanwhile, turned to Freshfields Bruckhaus Deringer, with the team led by the magic circle firm's Asia head of corporate Rob Ashworth supported by a team including China co-head of competition and trade, Alex Potter, and Beijing-based corporate partner Chris Wong.

The deal had been closely followed as an early example of how China might interpret its new anti-monopoly law, which only came into effect in August 2008. Broadly modelled on western competition laws, the measure also takes into account proposed mergers' impact on "national economic development".

The Chinese Ministry of Commerce rejected the deal after expressing concerns that a monopolistic Coca-Cola would try and exclude domestic competitors from the market. In a statement it said: "If the acquisition of Huiyuan went into effect, Coca-Cola is very likely to take a dominating position in the domestic market and the consumers may have to accept a high price fixed by the company as they will not have more choice."

The decision has surprised many in the market, although opinion among lawyers is divided over the impact it will have on future takeovers of Chinese targets by overseas companies. Statistics from mergermarket show the volume M&A deals involving Chinese targets more than tripled between 2004 and 2007, and more than doubled in value over the same period.

One China-based partner at a magic circle firm said: "Decisions like this cause a lot of uncertainty in the market. It is likely to make people think twice about buying companies in China."

However, Linklaters global head of corporate David Barnes said: "I do not think this will deter clients from attempting M&A deals because China is one of the largest markets in the world. Antitrust laws do not deter people from doing deals in the US and Europe."

Matthew Layton, Clifford Chance's head of corporate, commented: "Any predictions of a severe impact on foreign investment in China are over-stated. Sophisticated investors are well aware of the sensitivities in China around acquisitions of national champions and
famous brands."

For more, see Merger control: China's new anti-monopoly law.