Is China Over-intervening in The M&A of Multinational Corporations?
Is China Over-intervening in The M&A of Multinational Corporations?
Some reports suggest China is increasingly looking to have more say in global mergers and acquisitions. Indeed, the China's ministry of commerce (Mofcom) did issue regulations on global mergers and acquisitions.As multinationals become more "multi", they must file for a merger review in a growing list of jurisdictions. Companies file to receive approval for a deal to go through in every country, including China, for which it meets filing requirements.
"If you have a global deal, merger or acquisition, or even a new joint venture, it's possible that it could be subject to merger review in as many as 100 countries," says Peter Wang, head of law firm Jones Day's Chinese antitrust division.
According to the data, compared with other consolidated jurisdictions, such as European Union, China rarely intervenes in deals. Mofcom has interceded in or blocked only 1.2 per cent of all deals over the past four years. The european commission has blocked or intervened in 6.2 per cent of deals over the same period, according to the law firm Clifford Chance.
The impression of China's over interference in multinational companies comes from a 2009 attempt by Coca-Cola to acquire Chinese company Huiyuan Juice. The decision by China's ministry of commerce also affected Chinalco's proposed $19.5 billion tie-up with Rio Tinto, the Anglo-Australian miner.
In my opinion, why Huiyuan Juice has not been acquired by Coca-Cola? First of all, although there are differences between Coca-Cola's carbonated drinks and Huiyuan's juice drinks, but the difference is not significant. It can be said that these two products have certain substitutability to each other. For example, in China, restaurants generally provide both Coca-Cola and Huiyuan beverages. In general, we drink Huiyuan juice if the restaurants don't provide Coca-Cola, or drink Coca-Cola if Huiyuan juice doesn't provided.This substitution is very obvious. Although in fact these two products are not the same, but it is not same with the general mixed merger and acquisition of products, these two products have a considerable alternative. In addition, Coca-Cola Company also produces a fruit juice beverage called Minute maid, has entered the juice drink market, in fact there is a competitive relationship between the Coca-Cola and Huiyuan, since there is competition between them, the merger to a large extent can see As a horizontal merger. As horizontal mergers and acquisitions have a great impact on market competition, antitrust authorities are generally stricter in such mergers.
If Coca-Cola succeeded in acquiring Huiyuan, it would have the following adverse effects: 1. After the acquisition, Coca-Cola was able to transfer its dominance in the carbonated beverage market to the juice beverage market and eliminate and limit the existing juice beverage enterprises Competition, and thus undermine the legitimate rights and interests of beverage consumers; 2. The brand is the key factor affecting the effective competition in the beverage market, after the acquisition is completed, Coca-Cola will enhance its control over the entire juice market by controlling the "minute maid" and" huiyuan". Coupled with its dominant position in the carbonated beverage market and the corresponding conductive effect, the acquisition will significantly increase the barriers for potential competitors entering the juice beverage market. 3. The acquisition squeezes the domestic small and medium-sized juice enterprises' living space and inhibits the ability of domestic enterprises to participate in competition and independent innovation in the juice beverage market. It is also have the adverse effect on China's fruit juice drinks market competition pattern, which id not conducive to the sustainable and healthy development of China's fruit juice industry.
Bankers and lawyers blame the Chinese government for making such a protectionist measure, but China, after all, is still a developing country, and it really needs the government's support and protection for Chinese domestic brands.
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