Haier’s Gen­eral Elec­tric unit buy high­lights grow­ing China M&A ma­tu­rity

The Pak Banker - - COMPANIES/BOSS -

In the lead up to Gen­eral Elec­tric Co's ap­pli­ance unit auc­tion, Haier Group did some­thing Chi­nese bid­ders have rarely dared to do in a com­pet­i­tive global M&A deal.

While in­for­mal dis­cus­sions cen­tered around a bid of $4.2 bil­lion, peo­ple fa­mil­iar with the mat­ter told Reuters, Haier sub­mit­ted a knock-out $5.4 bil­lion bind­ing of­fer, mov­ing de­ci­sively to trump at least six other bid­ders in­clud­ing South Korea's Sam­sung Elec­tron­ics, China's Midea Group and Turkey's Arce­lik.

Haier's swift, bold move bore all the hall­marks of a sea­soned, well-pre­pared M&A player and un­der­scored how Chi­nese buy­ers are be­com­ing in­creas­ingly con­fi­dent about their abil­ity to clinch deals within tight time­frames. Howard Yu, pro­fes­sor of strate­gic man­age­ment and in­no­va­tion at IMD in Geneva, said af­ter years of do­mes­tic con­sol­i­da­tion China's state and pri­vate com­pa­nies had joined the "big boys" in global M&A.

"Such trend has been en­cour­aged by cen­tral govern­ment... but the do­mes­tic in­dus­try has also been con­sol­i­dated to a point that for­eign play­ers in­creas­ingly look like the only plau­si­ble tar­gets," Yu said. For Chi­nese bid- ders who had earned a rep­u­ta­tion among Western bankers for be­ing hob­bled by reg­u­la­tions, pol­i­tics and fuzzy de­ci­sion-mak­ing, Haier's abil­ity to seal such a deal in a month marked a sig­nif­i­cant step. And with slow­ing eco­nomic growth at home and a weak­en­ing yuan, the move of Chi­nese cor­po­ra­tions over­seas is set to ac­cel­er­ate, ac­cord­ing to bankers and ex­perts.

Zhang Ruimin, the 67-year-old founder of Haier, had twice pre­vi­ously failed to clinch trans­for­ma­tive U.S. deals, beaten in a 2005 bid for May­tag by U.S. gi­ant Whirlpool Corp and de­cid­ing against a 2008 takeover of the same GE ap­pli­ances unit. Ad­vised by Bank of Amer­ica, Zhang was un­will­ing to let his long-held dream slip this time. "This was a once in a life op­por­tu­nity, they couldn't let it go," one per­son fa­mil­iar with the deal told Reuters. "Haier was a mo­ti­vated buyer."

GE was also a mo­ti­vated seller, seek­ing a swift res­o­lu­tion af­ter wait­ing al­most two years be­fore U.S. an­titrust reg­u­la­tors even­tu­ally blocked the orig­i­nal sale of the busi­ness to Swe­den's Elec­trolux for $3.3 bil­lion. GE kick-started a for­mal auc­tion process af­ter that deal fell through in De­cem­ber. GE's ad­vi­sor Gold­man Sachs reached out to about half a dozen bid­ders, the sources said, who de­clined to be iden­ti­fied as the in­for­ma­tion is not pub­lic.

Haier forked out at least $100 mil­lion more than the near­est bid­der, they added. A Haier spokesman de­clined to com­ment on the specifics of the bid­ding process, but said GE "felt that Haier's sin­gle and one-time sub­mis­sion pre­sented the best of­fer for the busi­ness in terms of sus­tain­ably tak­ing the com­pany for­ward." Haier said it paid a mul­ti­ple of 8.2 times for pro­jected 2015 earn­ings be­fore in­ter­est, taxes, de­pre­ci­a­tion, and amor­ti­za­tion (EBITDA) net of cer­tain tax ben­e­fits, while GE val­ued the sale at 10 times EBITDA.

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