China: Coca-Cola's Acquisition Of Huiyuan, A Lost Opportunity For MOFCOM

Last Updated: 29 April 2009
Article by Jonathan Selvadoray, George Ji and Elaine Zhu

On 18 March 2009, China's Ministry of Commerce (MOFCOM), the enforcement agency for merger control under the Anti-monopoly Law (AML) , published a prohibition decision on the proposed acquisition by Coca-Cola of Huiyuan juice , which is to date the largest intended acquisition of a Chinese company by a foreign company with a transaction value of US$ 2.4bn. This is the first prohibition decision that MOFCOM has ever issued under the AML.

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On 18 March 2009, China's Ministry of Commerce (MOFCOM), the enforcement agency for merger control under the Anti-monopoly Law (AML) , published a prohibition decision on the proposed acquisition by Coca-Cola of Huiyuan juice , which is to date the largest intended acquisition of a Chinese company by a foreign company with a transaction value of US$ 2.4bn. This is the first prohibition decision that MOFCOM has ever issued under the AML.

Notification thresholds

Under PRC law, a concentration shall be notified if it meets the following Threshold 1 and either one of the two parts of Threshold 2.

  • Threshold 1: The China-wide turnover of at least 2 parties to the concentration exceeds RMB 400 million each in the preceding fiscal year
  • Threshold 2: The total worldwide turnover of all parties to the concentration exceeds RMB 10 billion in the preceding fiscal year
  • The total China-wide turnover of all parties to the concentration exceeds RMB 2 billion in the preceding fiscal year

According to a press release of MOFCOM ("Press release") , Coca-Cola and Huiyuan's turnovers in China in 2007 were respectively US$ 1.2 billion and US$ 340 million, which meet the Threshold 1. Although no statistics were provided, MOFCOM also confirmed that the parties' total worldwide or China-wide turnover meets the Threshold 2. The transaction is therefore subject to notification obligation.

Acceptance of notification

Coca-Cola submitted its notification of the transaction to MOFCOM on 18 September 2008 and then submitted supplementary documents four times in responses to MOFCOM's further requests and questions. On 20 November 2008, MOFCOM considered that the submitted documents were sufficient and formally accepted the notification.

According to article 24 of the AML and articles 5 and 6 of the Directive on the Notification of Concentrations of Business Operators , MOFCOM has the right to require further

  • Came into effect on 1 August 2008
  • China Huiyuan Juice Group Co., Ltd, a Hong Kong listed company, claims to have 43% share of the pure fruit juices market in China
  • Article 3 of the Provisions on the Notification Thresholds for the Concentration of Business Operators, promulgated by the State Council on 3 August 2008
  • Published on MOFCOM's website on 25 March 2009
  • Published on MOFCOM's website on 7 January 2009

Information or clarifications at its discretion. In the present case, it took more than 2 months for Coca-Cola to address MOFCOM's requests for further information.

Review process

From the acceptance date of the notification (i.e. 20 November 2008), the first phase preliminary review commenced, to be completed within 30 calendar days. On the expiry date of the preliminary review (i.e. 20 December 2008), MOFCOM decided to initiate the second phase substantive review, to be completed within 90 calendar days. MOFCOM finally published its decision on 18 March 2008, shortly before the end of the second phase's waiting period (i.e. 20 March 2009). By express reference to these milestone dates in the published decision, MOFCOM seemed to suggest that the review was conducted strictly in line with the timelines provided in the AML.

According to its decision, MOFCOM carried out a comprehensive review of the transaction, including:

  • The market share and market power of the parties
  • The level of concentration in the relevant market
  • The impact of the transaction on market entry and technology development
  • The impact of the transaction on consumers and other competitors
  • The brand impact on competition in the fruit juices market

MOFCOM also consulted relevant third parties, such as related departments, trade associations, competitors in the same relevant market or neighbouring markets, upstream suppliers, downstream distributors, legal or economic specialists, etc., in the form of written questionnaires, hearings, on-site investigations and so on.

Relevant market

The published decision only made references to the carbonated soft drinks and fruit juices market without giving a precise definition of the relevant market which seems to be a crucial issue to assess the transaction.

In the Press Release, MOFCOM however made it clear that the relevant market is defined as the fruit juices market, consisting of 100% pure fruit juices, blend fruit juices with fruit contents of 26%-99%, and juices with fruit contents below 25%. MOFCOM claimed that it conducted in-depth analysis of the substitutability between fruit juices and carbonated soft drinks and between fruit juices with varying concentrations of fruit. It made decision on the relevant market on the basis of (1) low substitutability between fruit juices and carbonated soft drinks and (2) very high substitutability of both demand and supply between fruit juices with different concentrations of fruit.

It seems clear that the "substitutability" principle played a major role in MOFCOM's decision to define the relevant market. MOFCOM seems to have adopted similar methodologies of

  • According to Article 30 of the AML, MOFCOM shall only publish its prohibition decision or clearance decision with imposed ancillary conditions

market definition as those used in other more mature jurisdictions.

Elimination/Restriction of Competition

MOFCOM concluded that the transaction would have the following anti-competitive impacts:

  • Coca-Cola would be able to leverage its existing dominant position in the carbonated soft drinks market over the fruit juices market, which would have an effect of eliminating and restricting competition
  • Brand is a crucial factor to the competition in the beverages market. The control of the well-known brands "Minute Maid" and "Huiyuan" would further strengthen Coca-Cola's market position in the fruit juices market and therefore increase the entry barriers for potential competitors
  • The transaction would squeeze small and medium sized domestic fruit juices companies and prevent competition and innovation

In the absence of any guidelines on the assessment of horizontal or non-horizontal concentrations, MOFCOM reached very broad conclusions without giving sufficient supporting evidence or analysis. The absence of a detailed decision has led many to accuse MOFCOM of nationalism, though it denied and emphasized that the decision was made only based on competitive concerns and would not affect the country's policy on foreign investment.

MOFCOM made further explanation to its decision in the Press Release. Taking into account Coca-Cola's 60.60% share of the carbonated soft drinks market in China and other competition advantages in terms of capital, branding, management, marketing, etc., MOFCOM considered that Coca-Cola held a dominant position in the carbonated soft drinks market. Although carbonated soft drinks and fruit juices are not highly substitutable, they are two neighbouring markets. Coca-Cola could potentially leverage its dominance in the carbonated soft drinks market to the fruit juices market by adopting tying or bundling sales of carbonated soft drinks and fruit juices or other exclusive conditions. This would, to a great extent, impair other competitors' capabilities to compete with Coca-Cola and prejudice competition in the fruit juices market.

It is to be noted that under EU law, the European judicial authorities have highlighted the need to prove leverage and that anti-competitive behaviors shall not be presumed.


The decision also stressed that MOFCOM had held several rounds of discussions with Coca-Cola to agree on remedies to tackle any anti-competitive impact of the transaction. However, it is likely that the remedies offered by Coca-Cola were deemed not satisfactory to

  • MOFCOM issued a draft guideline on the definition of relevant market on 7 January 2009 for public consultation till the end of January 2009
  • According to article 19 of the AML, a company may be deemed to enjoy a dominant position in the relevant market if it has a market share of 50% or more
  • Tribunal of first instance, case No T- 05/02, Tetra Laval BV vs Commission of the European Communities, 25 October 2002 and European court of justice, case No C-12/03 P, Commission of the European Communities vs Tetra Laval BV, 15 February 2005



This case has been under the spotlights for the past 6 months and is widely regarded as one of the most important test cases of the new merger control system under the AML.

While we can praise MOFCOM to have complied with the different timeline laid down in the AML, the content of the decision (and not the decision per se to prohibit the transaction) falls short of our expectations. MOFCOM seems to have missed a golden opportunity to provide a groundbreaking precedent in a field that is still largely new in China. Legal practitioners including courts, lawyers but moreover market players would have all welcomed a detailed decision that would have provided well needed guidance and transparency. As of today, no one can be satisfied with the decision and it becomes unfortunately easy for many to speculate on the political motivation or lack of courage of MOFCOM.

This article was written for Law-Now, CMS Cameron McKenna's free online information service. To register for Law-Now, please go to

Law-Now information is for general purposes and guidance only. The information and opinions expressed in all Law-Now articles are not necessarily comprehensive and do not purport to give professional or legal advice. All Law-Now information relates to circumstances prevailing at the date of its original publication and may not have been updated to reflect subsequent developments.

The original publication date for this article was 28/04/2009.

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