Breaking News, World News and Taiwan News.

Updated Thursday, July 7, 2011 11:53 pm TWN, By Michael Flaherty and Don DurfeeReuters

Sponsors
▪	Find great real time deals on China Flights. Book flights to China or China domestic flights 24/7.
▪	Buy china wholesale products from reliable chinese wholesalers on DHgate.com!
▪	Save 75% for all hotels in Shanghai, Beijing and whole China. Lowest rates for Flights in China.
▪	Get the best deals for Guangzhou Hotels or choose from more than 10,000 hotels in 499 Chinese cities.

Diageo deal not necessarily breakthrough for foreign takeovers in China

HONG KONG/BEIJING, For executives and advisers studying Diageo's major step toward control of a Chinese white liquor maker last week, a celebratory clink and a toast of “ganbei” are in order.

After all, the approval from a key ministry for Diageo to take control of Sichuan Swellfun, China's fourth-largest maker of premium white spirits by volume, confirms that foreign takeovers of Chinese brands are possible.

Since Chinese regulators blocked Coca-Cola's US$2.4 billion bid in 2009 for the country's top juicemaker, Huiyuan Juice, investors have worried such deals were effectively off the table.

It's a question that's bound to come up again as Nestle eyes a possible US$2.6 billion deal to buy Chinese candymaker Hsu Fu Chi International.

But those who see Diageo's move as proof that China has swung the doors wide to foreign investors may have consumed too much baijiu, the clear, fiery drink that can have as much as 60 percent alcohol content.

“I don't think it's a breakthrough — I'd be very skeptical that this deal is establishing some kind of pattern,” said David Livdahl, a Beijing-based partner with law firm Paul Hastings who works with foreign investors.

Ahead of the deal, Sichuan Swellfun, which owns China's oldest baijiu distillery, agreed to divest a jewel in its portfolio, the Quanxing liquor brand. That addressed worries that regulators might balk at letting a famous Chinese brand fall into foreign hands.

The deal took nearly two years — an eternity compared with most overseas deals. The complicated transaction was only finalized after the British and Chinese leaders became involved.

Sources say Britain's prime minister was expected to announce the deal on his trip in China in November last year. Instead, the press release had to wait until Chinese Premier Wen Jiabao traveled to the UK last month.

While the decision shows progress when it comes to Beijing's view of outside money, anti-trust review will remain a major hurdle for foreign acquisitions in China.

A particular worry is the still-untested panel China set up last year to review deals for national security issues.

Livdahl said that mechanism allows regulators a great deal of discretion on which deals they approve.

Diageo has jumped over the anti-trust hurdle, and appears to have avoided national security concerns. The next and likely final step is the China Securities Regulatory Commission review, which is expected to take several weeks.

When China's Ministry of Commerce rejected Coke's attempt to buy Huiyuan in March 2009, it cited the anti-competition term of “concentration.” That rejection came a year after China enacted new anti-trust laws meant to bring regulation in line with international standards.

China was explicitly saying that a combined company would hurt smaller players too much. But public figures at the time showed that Huiyuan controlled 10.3 percent of China's fruit and vegetable market and Coke 9.7 percent — hardly an overwhelming degree of market share.

1|2|Next Page>>