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September 5, 2008 6:25 PM

Skadden, Freshfields Advising on Coke's $2.4 Billion Offer for China's Huiyuan Juice

Posted by Brian Baxter

The Coca-Cola Company, the world's top seller of soft drinks, announced earlier this week that it had agreed to buy China Huiyuan Juice for nearly $2.4 billion. The deal, which Bloomberg says would be the largest foreign takeover ever of a Chinese company, would give Coke control over the roughly 220 fruit drink brands that Huiyuan sells in China.

But The Wall Street Journal reports on a potentially complicating factor: a Chinese antitrust law that went into effect on August 1. Prior to adoption of the new statute, regulators from a byzantine array of government agencies had a say on competition matters. Now, lawyers from two global M&A giants advising on the deal--Skadden, Arps, Slate, Meagher & Flom and Freshfields Bruckhaus Deringer--will need to navigate what could be a new regulatory minefield.

The Coke-Huiyuan deal is slated to be among the first transactions reviewed under the new statute, which is administered by China's Ministry of Commerce. But it's unclear whether the ministry's new antitrust arm--created in conjunction with the new legislation--is fully staffed or how it may interpret and analyze foreign takeovers.

Sources familiar with the deal who requested anonymity say that it's unclear where the new agency will set the bar for keeping certain industries in domestic hands. That Huiyuan markets consumer products and does not deal with critical natural resources is likely to work in favor of the deal being approved. Nonetheless, deal lawyers are likely to keep an eye on how the new law affects the acquisition to gauge its potential for affecting future cross-border Chinese acquisitions.

As noted by the Journal, foreign takeovers of Chinese companies can get tricky. After three years of stalled negotiations, private equity powerhouse The Carlyle Group ended its quest in July to purchase an 85 percent stake in the Xugong Group, a Chinese construction equipment manufacturer. Even after responding to Chinese regulators' concerns over foreign control by pledging to slash its stake to 50 and then 45 percent in subsequent years, Carlyle was unable to complete a deal. (Daniel Lennon, chairman of the corporate department at Latham & Watkins in Washington, D.C., and longtime outside counsel to The Carlyle Group, declined to comment to The Am Law Daily on alleged protectionism by Chinese regulators.)

Helping Atlanta-based Coke in its complex effort to swallow Huiyuan are Skadden M&A partners Martha McGarry in New York, Nicholas Norris in Hong Kong, and Gregory Miao, who divides his time between Beijing and Shanghai. (The American Lawyer named Miao one of its Dealmakers of the Year in March 2006 for his work advising China Construction Bank in its $9.2 billion IPO.)

Coke, which has had a longtime outside counsel relationship with Atlanta's King & Spalding, began turning to Skadden for domestic acquisitions and other high-end transactional work in 2002. At the time Coke's then–general counsel Deval Patrick--now the governor of Massachusetts--was conducting a review of the company's outside law firms.

In May 2007, Skadden represented Coke on its $4.1 billion acquisition of Whitestone, N.Y.-based Energy Brands, which sells beverages such as VitaminWater and SmartWater under the Glacéau brand name.

Robert Ashworth, head of the corporate practice at Freshfields in Hong Kong, is serving as lead counsel to Beijing-based Huiyuan. The firm previously advised Huiyuan on its $307 million IPO in February 2007.

Coke, which sources say has engendered some goodwill in China by doing business there for the past 30 years and spending millions on advertising during the recent Beijing Olympic Games, plans to keep the Huiyuan name.

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