Sep 16 2008
if blocking coke isn’t about nationalism, what is it?
Seems like Coca-Cola isn’t all the rage in China with the Huiyuan deal. This has been receiving little coverage on the blogs–I think only Stan Abrams has covered this more than once. (see his main post here) But I read this AFP article entitled “ Chinese firms try to block Coke’s juice company takeover: report” and had to at least post it:
A group of Chinese drinks makers are to submit plans to the government they hope will block Coca-Cola’s takeover of China Huiyuan Juice Group, state media reported Monday.
A consortium has prepared three plans and handed them to the Ministry of Commerce to keep the Huiyuan brand in Chinese hands, the Beijing Morning Post reported, citing an unidentified official at one of the companies.
The ministry says it will review the proposed 2.4 billion-dollar friendly takeover of the Hong Kong-listed company, according to the principles of a market-oriented economy.
No it won’t. Let’s be honest: market oriented economy happened already when Huiyuan decided to sell out to Coke. That’s the market at work. This isn’t. This is about government protectionism and meddling. (not that the U.S. doesn’t do this either, so don’t get me wrong) I just want to clarify that this is a smokescreen if I’ve ever heard one.
The consortium’s proposals include breaking up Huiyuan and selling it to different Chinese firms or purchasing it with a yuan-denominated fund set up by domestic companies, the newspaper reported.
Another proposal would see the government giving the green light to the merger but retain the name and then sell it on to Chinese companies, the report said.
Okay, so the first is what I would normally expect: cut up the business. Normal procedure for corporate raiders and hedge funds, so nothing new. And it does make sense if China wants to protect Huiyuan–parse it out and let other companies keep the brand.
It’s this second proposal that is really ludicrous to me. Do you really think that Coke would want to buy Huiyuan if it can’t retain the name? Really? I can’t. Coke isn’t there to just buy another supply chain… that brand name has to be worth something for Coke to buy it, as opposed to deciding to ramp up its own operations in China. And if the brand had no worth, then this consortium wouldn’t care. But as we all know, it is valuable… and that’s why this second option is plainly ridiculous. (or patently obvious for you IP types)
Expect to see Coke hit the eject button if this ever happens.
And of course, I had to include this:
“It’s not because of narrow nationalist feelings,” the report quoted an unnamed official from one of the consortium companies as saying.
He suggested the deal could kill a champion Chinese brand if allowed to go ahead.
Yeah right. Coke won’t kill off a Chinese brand if it can make money off of it. It may integrate the brand or tinker with it, but kill? That’s a bit too harsh if you ask me. But really, it’s nationalism. It’s the same thing that happened when Budweiser announced that it would be taken over… the U.S. consumers were none too happy about it though the reality is that they wouldn’t be able to know the difference if anyone didn’t say anything. Same here I would wager. But because there is nationalism at play, that’s what could motivate such a consortium to head for the MOC.
Really, if it isn’t nationalism, what is it? I can’t think of a good reason myself.
If Coke was gonna move into my market in a big way, and I had the opportunity to invoke protections under protectionist legislation to keep them out, would I owe a duty to my shareholders to do just that? If appeals to nationalism could keep a huge competitor out of one’s market, then appealing to nationalism regardless of one’s actual nationalistic tendencies could prove pretty effective.
Will:
I don’t disagree that its an effective strategy. I think it is, though I think much of it is motivated by things other than a duty to shareholders. (Of course, there is an assumption that this consortium’s action is really beneficial for the shareholders, which it may or may not be… I don’t know the books and values of the different assets and IP involved)
In this day in age, few directors/officers ever really care about the shareholders. (not much in America, probably less in China) It’s about the bottom line in most cases, as it is here.
So I’d say that this consortium is probably motivated by a mixture of nationalism + opportunism. But of course, it’s only made possible by nationalism. I’m just looking to call it what it is.