China’s art of the deal: How M&A pariahs became global players
WHEN a Chinese homeappliance company announced a plan in May to become the largest shareholder in one of Germany’s most advanced robot manufacturers, the backlash was immediate.
German politicians and European officials denounced Midea Group Co.’s offer for Frankfurt-listed Kuka, whose robotic arms assemble Airbus jets and Audi sedans. In a rare public appeal for alternative acquirers, Germany’s economy minister argued that Kuka’s automation technology needed to stay out of Chinese hands.
And yet in two months, Midea pulled it off. Thanks to a combination of political courtship, guarantees on jobs and security, and support from influential customers like Daimler Chief Executive Officer Dieter Zetsche, Midea overcame knee-jerk opposition to the deal. By July the appliance maker had secured an 86 per cent stake, valuing Kuka at 4.6 billion euros ( RM20 billion).
The experience showed how some Chinese firms are learning to soothe misgivings about the country’s record US$ 207 billion overseas buying spree. While Sinophobia isn’t yet a thing of the past and practices among Chinese buyers vary widely, merger-and-acquisition professionals say a new generation of savvy dealmakers is starting to emerge from the world’s second-largest economy.
“Many Chinese companies have become much more adept at navigating international deals in the last few years, and at soothing the concerns stakeholders might have,” said Nicola Mayo, a partner at London law firm Linklaters who specialises in China-Europe transactions. “In many of the larger Chinese companies, you’re dealing with managers who were educated abroad or have worked in international firms. They understand the concerns about China and know they need to move carefully.”
That growing fluency is making Chinese businesses a more powerful force in the M& A world than ever before, particularly in Europe, which has accounted for nearly half of China’s overseas take- overs this year. While that’s a potential boon for slow- growth Western economies in need of fresh sources of capital, it also means stiffer competition for European and US acquirers at a time when global equity prices are already near record highs.
China’s most sophisticated bidders have developed a consistent playbook to minimise backlash. Hostile take- overs are virtually off limits, while friendly offers are often revealed only after years of informal courtship. There are pledges to keep existing management teams in place, investment guarantees lasting half a decade or more and steps to preserve independent oversight.
For the Kuka deal, Midea pledged to maintain existing plants and jobs until at least 2023 – far longer than the norm for similar deals – and promised to keep customer data walled off from the Chinese parent company. It deployed vice president Andy Gu, a social scientist by training with a doctorate from Cornell University, to make those assurances face-to-face with the German economy minister’s senior staff, according to people with knowledge of the matter.
Meanwhile, Kuka helped ease any concerns among its customers, the people said, asking not to be identified because the information is private. A representative for Midea declined to comment, while a spokeswoman for Kuka said she couldn’t immediately comment.
Midea has been quick to pounce on other opportunities as well. The Chinese company sent a letter stating its willingness to acquire General Electric’s appliance arm within 24 hours of an existing deal with Electrolux falling through, according to people with knowledge of the matter. Though it lost in the end, the eventual winner was domestic rival Qingdao Haier Co. with a US$ 5.4 billion bid, rather than a more- established Western competitor.
This year’s announced deals have also included China National Chemical Corp.’s US$ 43 billion takeover of Switzerland’s Syngenta, which would be the biggest- ever foreign acquisition by a Chinese company. Tencent Holdings led an US$ 8.6 billion deal in June for Finnish videogame maker Supercell, while China Oceanwide Holdings Group said it will buy US insurer Genworth Financial Inc. for US$ 2.7 billion. And on Oct 24, HNA Group agreed to buy about 25 per cent of Hilton Worldwide Holdings Inc. for about US$ 6.5 billion, marking the latest investment by Chinese firms in hotel and travel businesses to tap growth in outbound tourism.
The “acquisition wave out of China is still broadening and deepening,” said Joseph Gallagher, the Hong Kong-based head of Asian M& A at Credit Suisse Group.
While Chinese mega- deals have spanned a wide range of industries, the ChemChina-
Many Chinese companies have become much more adept at navigating international deals in the last few years, and at soothing the concerns stakeholders might have. Nicola Mayo, a partner at London law firm Linklaters
Syngenta transaction may be the most instructive as a guide to the country’s new approach to acquisitions. The offer created almost no controversy in Syngenta’s home base of Switzerland, even as it gave a state- controlled Chinese company a central role in the global food industry.
The lack of opposition stemmed in large part from Syngenta’s enthusiastic endorsement of the deal, according to people involved in the transaction. The takeover was structured to keep existing managers in their jobs, retain a Swiss headquarters and work toward a future re-listing of the company. Early in negotiations, ChemChina asked Syngenta to propose a governance structure for the combined company, giving the take- over target an unusual lead role in the deliberations, the people said. ChemChina pushed back on a few minor elements, but the structure proposed by Syngenta was largely incorporated in the final agreement, the people said.
A representative for ChemChina didn’t immediately respond to an e-mail seeking comment. Leandro Conti, a spokesman for Syngenta, said the ChemChina offer ensures continued choice for growers at a time when considerable consolidation is taking place in the industry.
“It is not a merger, but simply a change in share ownership,” Conti said in an e-mailed statement. — WP-Bloomberg