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上海段和段律师事务所合伙人。 信息网络及知识产权专业领域资深律师。业务涉及商业地产,民航,企业商务法律事务,兼并收购,诉讼仲裁,高新技术企业认定,外商投资,等。 中国电子商务协会政策法律委员会副主任。

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Coco Cola bidding Huiyuan Juice: Analysis from Competition Law perspective  

2008-09-08 17:25:10|  分类: 责任公民 |  标签: |举报 |字号 订阅

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By Spring Liu / Guangsheng &Partners Shanghai Office

As the first huge Merger deal after the PRC Anti-monopoly Law taking effect on August1 2008, the public is having heated discussion on whether this deal can be approved by the MOFCOM. Being an IP and anti-trust lawyer, we have the following analysis for the readers’ reference:

Question 1: What are the examinations required by PRC laws in this case? Does the MOFCOM have sufficient power to deny the application?

Firstly, the PRC laws have three possible examinations over such deals, i.e,  the market access  approval to foreign investment according to the three foreign investment laws; the anti-trust law examination to both domestic and international companies, which is aimed to regulate the competition of the companies; and state economic security examination. If the target company is state-owned enterprises, or if it is related to some other pre-approval from other government departments, the deal must be subject to approval by such departments before it can be enforced lawfully.

Since the Hong Kong listed Huiyuan Juice is a public company registered in Cayman Islands, it may be involved in complicated legal framework, it is possible that the entity operating the assets in mainland may be subject to approval of foreign investment committee, or it may be controlled indirectly by the Hong Kong listed company, and thus the PRC entities may not be subject to approval of the FDI Committee. However, the controller de facto shall be changed after the deal, whereas the well-known trademark “Huiyuan Juice” shall also be sold to Coco cola, this deal shall be subject to approval according to the anti-monopoly law and the Foreign investment Merger & Acquisition Rules effective in 2006.

Secondly, To ensure the competition of the market, the deal shall be subject to examination of competition perspective. The amount is definitely higher than the minimum requirement which the MOFCOM has just issued in August. The MOFCOM shall have 30 days for preliminary examination, no further examination will be required if it considers no effect will be made after this deal. While if it does consider that the deal will have impact on the competition to the relevant market, the case will come into the next phase for further examination.

According to Article 27 of the Anti-monopoly law, six factors shall be taken into consideration: one. The buyer and seller’s market share, and their controlling ability to the relevant market. Here we have a small but critical word “relevant market”, what does it mean? Does it refer to the beverage market including the pure water, carbonated drinks, etc? or does it refer to juice market only? A broad or narrow explanation to this definition will have critical impact to the final decision maker. According to the statistics of a leading international market research company, the marker share of Huiyuan Juice in 2007 is 46% in pure juice market and 39.8% in medium-thick juice market. While the juice brand of Coco cola has 25.3% of the juice marker share and ranked only second to Huiyuan. Supposing the two brands merger into one, the market share will be more than 70%, definitely this will cause huge effect to the President and other competitors in mainland market. The second factor is market concentration. Obviously the merger will cause a market concentration of far above 50%. The third(the influence of the mergers of operators to the market access and the progress of technology) and 5th factor(national economic security) is not significant in this deal, while the 4th factor “influence to the consumers and other relevant business operators”, is worth discussing because:1.the deal will have impact to its upstream industry, since juice is different from pure  water and other beverage, the fruit farmers have long investment cycles, and are heavily effected by climate, natural disasters, international market ,etc. 2.Currently it is always the sellers’ market in beverage market, the processing and sales channels have critical impact to the its upstream business owners, particularly small farmers.3. Similar examples are the suppliers disputes with Carrefour in 2002, in which Carrefour can decide the price and drop out the suppliers easily. 4. Another lesson can be learnt from the soybeans farmers and processing industry. Several years ago, foreign investment have swallowed almost all the big soybean processing factories, they began to import transgenic soybeans and other cheaper raw materials, now most of the soybean farmers in north east China have become insolvent and the government is now trying to save the local soybeans from diminishing.  My suggestion is that the ministry of Agriculture shall make some further investigation to this matter and give a report.

 The anti-monopoly law also has some soft clauses to empower the government to decide the case on its discretion.

Question 2.  Should it be denied or approved?

The purpose of competition law is to protect competition instead of competitors. This is the fundamental rule of competition law but it has long and always been neglected or misused. The biggest and second biggest competitors are applying to merger. This is no doubt clear threat to the normal competition in this market. No one can compete with this giant if it is approved.

Apart from the legal perspective, the deal is also deniable in many other respects. Huiyuan’s success is not only the achievement of the investors, but also the contribution of the government and the public. For instance, Huiyuan has long enjoyed the favorable policies as well as cheaper land use right, support of the farmers, etc. The well-known trademark itself, even if the deal is less than the minimum requirement of the anti-monopoly law, is subject to the approval of the government.

The depression of the Chinese stock market is a good opportunity for international companies to merger the local leading enterprises. Obviously Coco cola will never buy a company that it can not make money. Huiyuan Juice will become dead like Tianfu Cola, Robust, and some other local leading brands in the past. 

Question 3. Is there any scruple if the deal is denied?

The answer is yes.

Lenovo bought the lap top business of IBM but the lab was kicked off. However, the Chinese enterprises are going out to merger companies. Because of the obstacles in IBM and Uonco, the public of PRC are becoming more and more aware of the economic security but the Mofcom is well aware of the difficulty of the potential Chinese buyers and thus are reluctant to be influenced by such voices.

Narrow nationalism is not popular and will not be effective if used to influence the decision of the MOFCOM. However, the Huiyuan Juice deal is a good sign as well as test on whether the PRC anti-monopoly law can have some impact on regulating the competition of the entities, particularly the multinational corporations.

(Spring Liu is the D.Director of IT&E-commerce Committee of Shanghai Bar Association and a top IP lawyer in China)

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