SHANGHAI AND LOS ANGELES — Coca-Cola Co.'s $2.4-billion bid to buy China Huiyuan Juice Group, rejected Wednesday by the Chinese government, is the biggest of a growing number of failed mergers and acquisitions in Asia.
Analysts say the decision could hurt efforts by Chinese companies -- both state-owned firms and private ones -- to buy companies and assets around the globe.
In blocking Coca-Cola's effort to expand its reach into China by acquiring the country's top producer of undiluted fruit juices, the Ministry of Commerce in Beijing said the deal could restrict competition and lead to higher prices for consumers.
Many people in and outside China had been closely following the case, which was seen as the first major test of China's new anti-monopoly law. American attorneys had generally expected approval, thinking that Beijing would not reject a deal that didn't involve a strategic asset or want to risk criticisms of protectionism.
"It's contrary to what most of us had been expecting," said Daniel Roules, an attorney in the Shanghai office of Squire, Sanders & Dempsey.
Coca-Cola Chief Executive Muhtar Kent said the Atlanta company was disappointed but respected the decision and would continue with its existing efforts in China. Coke announced plans this month to invest $2 billion in China over the next three years.
China's denial of the bid comes at a time when the Asian nation is snapping up foreign assets like never before, to develop leading technologies and ensure that it has plenty of natural resources. China's outbound mergers and acquisitions last year were worth a record $52.1 billion.
Seven of the 10 largest outbound Chinese mergers and acquisitions this year have involved mining companies, according to Dealogic, including last month's $19.5-billion deal between China's state-owned Chinalco and Australia's Rio Tinto, which is facing opposition in Australia.
Including Coca-Cola's unsuccessful effort, mergers and acquisitions valued at nearly $25 billion have failed in Asia so far this year, up 36% from a year earlier, Dealogic said. Although that was largely because of the credit crisis, analysts said the latest decision on Coca-Cola could make matters worse, especially for China.
"They're going to find more push-back like in Australia," said Jabulani Leffall, Asia desk analyst for FactSet Research Systems. The Chinese, he said, "are using large cash reserves to buy everything. But when it's the other way around, there are domestic restrictions and rigid anti-monopoly laws."
Since Coca-Cola and Huiyuan announced an acquisition agreement in September, China's domestic drink industry as well as many ordinary Chinese have complained about the potential loss of a leading home-grown brand to the global soft-drink giant. Although little known outside its homeland, Huiyuan said in its latest financial report that it controlled 44% of the pure fruit juice market in June 2008.
Coca-Cola held 11.8% of China's overall fruit and vegetable juice market in 2008 and Beijing-based Huiyuan held 8.5%, Euromonitor International said.
China's Commerce Ministry took pains to portray the decision as not reflective of any broader position on mergers and acquisitions. The ministry said that since the nation's anti-monopoly law took effect in August, the government had reviewed 29 cases and that 23 of them were unconditionally approved and one was accepted after modifications. The agency did not identify the cases.
The ministry said it had asked Coca-Cola to make changes to its acquisition plan, which the company did. But after review, the agency said Coke's dominance under the merger could reduce competition and hurt smaller rivals.
Yi Xianrong, a researcher at the Chinese Academy of Social Sciences, said he believed that Beijing's decision was swayed by public sentiments and political ideology. He expressed concerns that it would send the wrong message to foreigners and have a chilling effect on future mergers and acquisitions that could ultimately hurt China's economy.
Other Chinese analysts and lawyers disagreed.
"You cannot say that this objection is not justified because the acquisition itself does form a large monopoly threat," said Qian Weiqing, a senior partner at Dacheng Law Firm in Beijing.
"I think this deal shows that China's legal environment is getting closer to that in the international market," he said. "It is quite common for such deals to be rejected globally, and this is just business."
Roules, the American lawyer, said it was possible that protectionism and other factors overlaid the Commerce Ministry's decision. "But they've articulated an opinion that quite artfully presents it in a way that it would be acceptable as valid economic reasons."
Cao Jun in The Times' Shanghai bureau contributed to this report.