“BEIJING (Reuters) – China on Wednesday rejected a $2.4 billion bid by Coca-Cola for China’s top juice maker, Huiyuan Juice, blocking what would have been the largest-ever takeover of a Chinese company by a foreign rival.” http://www.reuters.com/article/companyNews/idUKTRE52H1N720090318
There are lots of losers in this deal – but there may be a hypothetical upside for American investors in China.
Huiyuan did everything right in China – they took their time, focused on quality and built a strong brand that could attract the attention of the majors. Just as they were ready to grab the gold ring and cash in on their years of hard work, they were stock-blocked by the central government.
The Visible Hand of Socialism
The question for legal scholars is “Why”? Was it that 40% of the juice market was tantamount to an effective monopoly – otherwise known as ‘the high road’? Or was it to defend ‘China’s national interest’ – the other road? If ‘national interest’ is construed to cover private brands and traditional trademarks (the French model), then it has serious implications for negotiators on both sides of the Pacific.
China business has a number of stakeholders, and the central government is far and away the most powerful. Up until now, however, Beijing’s motives have been hard to discern. On the one hand, China has always encouraged investment – especially by big-name famous brands that could help Chinese companies climb the value ladder. On the other hand, hard-line nationalistic elements have always resisted the influence of foreigners in Chinese business and life.
Western Negotiators Just Got a Gift
The hard, cold fact is that if Beijing is extending the mantel of state protection to cover private brands then local Chinese negotiators have suddenly had one of their most potentially lucrative exit strategies locked down – or at least guarded by an unpredictable force. The Great Chinese Dream is about going IPO or finding a HUGE buyer – like Coke. If Beijing is taking that option off the table for famous domestic brands, then up & coming Chinese entrepreneurs would be wise to make good partnerships before their growth plans kick in and they start getting watched too closely by the world’s largest mother hen.
Tactic: Bird in the Hand (or the Devil You Know)
Let the lawyers pick over the carcass of this bloated Coke-Huiyuan corpse. American deal-makers have new leverage with small and medium sized branded companies in China – who now have to worry that success in their own market-place will get them cloistered in the rmb nunnery of China’s domestic market. Sure, it’s a drag if you are Coke and you wanted to buy up China’s only name-brand non-carbonated beverage maker. But for the other 99.99999999% of us, this decision may be a godsend.
Skilled Western negotiators will be able to exploit Chinese entrepreneurs’ deep-seated and well-earned fear of an intrusive central government. Will this new ruling restrict a burgeoning brand’s ability to find investors and buyers from the international market? “Probably not. Maybe. Who really knows? If you want to take the risk of building up your company on your own and then asking for permission to find a foreign partner, then jiayou, tongzhi. But right now, we’re talking about a deal that won’t raise any objections. I’m willing to sign a partnership with you now – but once your central government starts taking too much interest, all deals are off!”
Western negotiators have to remember that Chinese entrepreneurs view Beijing with a measure of ambivalence. On the one hand, the Center can make all things possible – and Chinese people are much more patriotic and ‘with the program’ than Westerners tend to be. But in a nation where the legal system is new, fragile and in flux, individual businesses have no recourse against edicts of the State. Smart negotiators can exploit those fears and concerns – and counteract that cursed Chinese patience (i.e.: American Negotiator Kryptonite). Size and popularity just became a double-edged sword for Chinese brands – and now they are the ones who have to act before it’s too late.