Coke tests Beijing's acceptance of acquisitions

Huiyuan Juice Group Ltd., little known outside China but with an estimated 42 percent of its pure juice market, could become a victim of its own success if Beijing deems it too big and famous to fall into foreign hands.

Huiyuan's green cartons of orange, apple, pear and grape juice are ubiquitous in Chinese grocery stores. Acquiring the company would expand Coke's presence in a major market. For Huiyuan, which welcomes the deal, being acquired would give it access to experience at product development and marketing.

The bid, announced Sept. 3, has ignited a firestorm of criticism in China, where the state-controlled press and schoolbooks nurture grievances over colonialism. Angry comments posted on Web sites call Huiyuan founder Zhu Xinli a traitor and demand that Beijing reject the deal.

The communist government routinely defies public opinion when deciding on job cuts at state companies or other painful steps deemed necessary for China's overall good. But Chinese leaders might share the public's distaste about Coke because the bid collides with their goal of building major Chinese companies to dominate domestic industries.

Beijing is likely to reject Coca-Cola Co.'s bid for the very reasons Huiyuan is an attractive target--it is successful and well-known, said Donald Straszheim, an American investment banker who specializes in China.

"While the shareholders on both sides might approve, we do not see significant reasons why the authorities would approve this deal, allowing a major acquisition by a foreign firm of a highly visible domestic company," Straszheim, vice chairman of Roth Capital Partners, said in a report to clients.

Others say Coke might be able to win approval--and survive a review under China's new anti-monopoly law--if it can make a case that the deal will benefit China. The American suitor says it will retain the Huiyuan brand and invest to develop it.

"If Coke offers a really great amount of money, nationalism will yield to the money," said Conita Hung, director of equity markets for Delta Asia Financial Group in Hong Kong.

A Coca-Cola spokesman, Kenth Kaerhoeg, said managers have met with Chinese regulators but declined to comment on the review process.