Is Protectionism Returning?

The Chinese government blockade of Coke's $2.4 billion purchase of juice company Huiyuan is the hot topic today (aside from AIG ).

The Chinese government's argument—that it would stifle competition—seems strained. According to analysts, Coke's juice share in China is currently 10 percent, and would go to 20 percent if the deal was approved—hardly a monopoly.

Instead, this seems like an attempt by Chinese authorities to keep a Chinese brand together so it can compete globally once demand recovers.

In other words, protectionism. Here's a nice test: see if Pepsi steps in and offers a lower price; will it be approved? Pepsi has a far lower share of the market there.

Regardless, most analysts are ecstatic the deal isn't being done; they note the deal was priced when things were far better. Barclay's calls it a "blessing in disguise," JP Morgan says $2.4B was a hefty price to pay for growth, while Deutsche Bank says this was "not the worst time" to have $2.4 b in cash.

What will Coke do? How about bringing back the share buyback program, that was halted when the deal was announced?



Questions? Comments?