Coca-Cola failed to merge with Huiyuan Juice --- The Influence of Non-economy Factors

After we discussed about the cooperate format, this week my topic would involve the merger itself. Speaking for the semantics definition of merger, it could be described as the combining of two business entities under common ownership. Before the mergers, the company should think about what they could achieve by these processes and what are the benefits. Normally, companies should experience regulation, pre-bid, bid and post-bid to finish the merger. During processes, companies have to consider the difficulties of the mergers, from finance and management. However, there are other kinds of factors that also influence the result very much, such as, the politician and culture. Governments could have several ways to influence the result of mergers, such as the cost increase, the bureaucratic functions. This blog would focus on the Coca-Cola’s merging failure and discuss why the Chinese government wants to reject this merger and the effects of the failures.

On March 23th, 2009, the biggest international merger of Coca-Cola was declared to be failure with the statement of Ministry of Commerce (MOC). The MOC rejected this merger, for they thought this merger could lead the unbalance competition in Chinese beverage industry. Coca-Cola, the biggest carbonated beverage producer, would use their great distribution ability to aggress into the whole Chinese market with the basement of Huiyuan. This merger was looked forward by both of the company, for Huiyuan, it could be challenge to develop themselves with advanced technology, marketing and management, and for Cola, it was a great opportunity to obtain the competences in Chinese Market, their third large market in the world. There was no conflict between the two companies, so the main reason for this failure could be attributed to the political factors.

Why did the government want to force this merger to be rejected? According to Brussels’ report, the main reason could be Cola-Colonization. Cola had invested in Meizhiyuan (Minute Maid) in Chinese juice industry, but it was not obtain the main market share successfully. Thus, Cola wanted to used Huiyuan, the biggest pure juice producer, to achieve their colonization strategy. If this merger has been reached, the biggest market share would be obtained by the company, the other companies, like Wahaha Co., Qianshou Juice Co and other the local brands would run their business in a unfair market, which was not match to Chinese government policy to develop their national brand. Besides, the Cola would gain the buyer power and seller power at the same time, it would do harm to the customers’ benefits without doubt. Additionally, they considered the difficulties of technology transfers, and found it would be difficult to achieve the technology from Cola. Even though, the technologies could be transferred, the benefit could not overweight the drawbacks in the market. So the merger failed. However, what was the conclusion for this failure?

 

Speaking from the Huiyuan, they was listed in Hong Kong stock exchange market, and their shareholders felt very disappointed with this result, and there were 42% price dropped, and Cola dropped 20% in the following 6 months, which could not react so fierce like the former. Some comments point this disaster to Chinese government directly. In my opinion, this hard result could be cruel, but this could be the last protection for the new market from unbalance competition, which could contribute to the organized booming in the new market in totally. In terms of improvement, the better way may try to use economic control but political control instead to provide a soft landing for the failure.