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In the first half year, the number and transaction amount of overseas takeovers by Chinese enterprises climbed significantly and broke the record.
Cases of termination of M&A increase
Not being able to reach an agreement on key clauses such as price is the main reason accounting for the termination of M&A. In March, Zoomlion proposed to buy the entire equities of Terex Corporation, a U.S. manufacturer of lifting and material handling solutions at 31 dollars per share with the total valuation of 3.4 billion U.S. dollars. In May, Terex entered in to an agreement with Konecranes, a Finnish company, proposing to sell its material handling and port solution (MHPS) segment. As talks on the price of Terex after splitting the MHPS segment aborted, Zoomlion on May 27 announced that it had terminated the acquisition.
At the same time, fierce competition is seen in cross-border M&A, especially for large scale M&A cases. On March 14, Starwood announced that it received non-binding tender offer from a consortium consisted of three financial institutions, i.e. Anbang Insurance Group, J.C. Flowers& Co and Primavera Capital Group. The bid by the consortium was 12.84 billion U.S. dollars, higher than Marriott International’s 12.18 billion U.S. dollars. Subsequently, the consortium led by Anbang increased the bid to 13.2 billion U.S. dollars on March 18. However, Marriott International announced that it had signed a revised M&A agreement and increased the valuation to 13.6 billion U.S. dollars. While the consortium further offered 14.15 billion U.S. dollars. On March 31, Starwood announced that the consortium decided to cancel the previous takeover plan, and would not prepare any other plan.
Besides, scrutiny is another road lock for cross-border M&A. the market has great expectations on Unisplendour Corporation Limited (UNIS) (000938.SZ) from last year when it announced to spend 3.8 billion U.S. dollars to buy the world famous hard disk manufacturer Western Digital Corp. However, UNIS on Feb. 24 announced that the company had received a written notice from the Committee on Foreign Investment in the U.S. (CFIUS), which said that the acquisition of Western Digital Corp by the company is subject to the reviewing procedure of the CFIUS. According to relevant provisions of the Share Subscription Agreement of the two parties, if failed to obtain waivers from the CFIUS for the reviewing of the transaction, both parties are entitled to terminate the Share Subscription Agreement unilaterally. As a result, the board of directors prudentially decided to terminate the transaction.
Overall, the number and transaction amount of takeovers by Chinese enterprises overseas climbed significantly. Since 2013, the M&A market has developed very quickly, and Chinese enterprises get increasing enthusiasm on cross-border M&A, and become important participants in the global M&A market. According to statistics from Dealogic, up to May 25 during this year, the transaction amount of global takeovers had reached 1.292 trillion U.S. dollars. Significantly, the market share of the takeovers in the Chinese market has doubled compared with 2015 to reach 24.3 percent. And the transaction amount was 313.791 billion U.S. dollars, up 57.89 percent year on year.
As Chinese enterprises’ participation in cross-border M&A deepens, large M&A cases are emerging. At the same time the odds of failure also increased. Other cases of large scale cross-border M&A since the beginning of the year include Hainan Airlines Group’s takeover of Ingram Micro, an U.S. IT product service distributor with 6 billion U.S. dollars, Haier’s acquisition of home appliances business of General Electric with 5.4 billion U.S. dollars and Dalian Wanda’s acquisition of Legendary Pictures LLC with 3.5 billion U.S. dollars.
Supporting policies unveiled in succession
Though lots of M&A were finally terminated, Chinese enterprises’ experience enriched after years of practice, thus their integration capacity improved and more examples of successful cross-border M&As appeared. Meanwhile, supporting policies also boost enterprises’ cross-border M&A.
Take Anbang for example, though it failed the competition with Marriot International to buy Starwood, seen from a number of takeovers initiated by Anbang in overseas market in recent two years, the failure of Starwood acquisition is unworthy of being mentioned. Buying Waldorf Astoria Hotel in New York in 2014 was just the beginning of overseas takeover for Anbang. In 2014, it also acquired the entire equities of FIDEA, a Belgian insurance company, and LLOYD bank, a Belgian bank. In 2015, Anbang acquired the entire shareholding of VIVAT, a Dutch insurance company, as well as the South Korean Tong Yang Life Insurance and U.S. Fidelity & Guaranty Life Insurance Company. In this March, Anbang agreed to take over Strategic Hotels & Resorts Inc, a REIT under Blackstone at the valuation of 6.5 billion U.S. dollars. It is the highest price that a Chinese enterprise has offered for the acquisition of U.S. real estate assets.
The supporting policies have been issued continuously since 2014 to guarantee the overseas M&A of domestic enterprises. Ministry of Commerce (MOC) in September 2014 launched revised Overseas Investment Management Method to determine the managing pattern of “focusing on filling with review & approval as subsidiary role”. According to the Method, domestic enterprises investing and building up non-financial companies overseas, which involves sensitive countries, regions or industries, will be reviewed and approved by the MOC; in terms of other situations, the central management enterprises will report it to the MOC for filing, and local ones report to the corresponding provincial governments. In March 2015, China Banking Regulatory Commission revised the Risk Management Guidelines on Merging & Acquisition Loans of Commercial Banks issued in 2008, lowering the thresholds for commercial banks to carry out M&A loan businesses. Main adjustments include: M&A loan term from five years to seven years; proportion of M&A loan in transaction price from 50 percent to 60 percent; cancelling mandatory requirements for M&A loan guarantee.
Furthermore, the implemented national strategy of “the Belt and Road” initiative (“B&R”) also constantly provide support in policies and capital for overseas M&A of the enterprises. Related media report that the “B&R” investment fund of Jiangsu province has been successfully trusted by Bank of Jiangsu with a total scale of 3.01 billion yuan. This fund is mainly used to support the overseas M&A and cooperation in investment, economy and technology of Jiangsu’s enterprises, establish sound and healthy service & trade boosting system in Jiangsu, and actively encourage and support the Jiangsu’s enterprises to invest and deploy in the preponderant fields related to Big Health, Big Consumption, Energy Saving & Environmental Protection, New Energy, Internet Finance and etc.
Participate in global industrial integration
Along with constantly increased enthusiasm of enterprises in overseas M&A, the case number and transaction amount soar sharply. The depth of enterprises realizing industrial upgrading and participating in global industrial integration through overseas M&A has also been greatly reinforced.
The overseas M&A has already become a significant way for domestic enterprises to expand industrial chain and realize industrial upgrading, especially the manufacturing industry. Taking Midea Group Co., Ltd. (000333.SZ) as an example, the company announced in the evening of May 18 that it proposed to voluntarily provide an offer to acquire KUKA Group, a Germany robot manufacturer, with the highest price no more than 4 billion euros (about 29.2 billion yuan) in cash. Midea Group indicated that KUKA’s rich experience and perfect product line of industrial robot and automatized production will further improve the production efficiency, and boost the manufacturing upgrading. Meanwhile, KUKA’s advanced technologies in industrial robot and system solutions and Midea’s accumulative experience in production, sales and market promotion of domestic household appliances will make the two parties jointly expand the wide robot market in China.
Besides expanding the industrial chain, enterprises also deeply participate in the industrial integration worldwide through overseas M&A. Qingdao Haier Co., Ltd. (600690.SH) suspending the trade for over two months announced on Jan. 15 that it planned to acquire GE household appliance business with 5.4 billion U.S. dollars (35.5 billion yuan). By this acquisition, Haier obtains all R&D and manufacturing capabilities of GE household appliance, nine factories in the U.S., logistics & distribution channels worldwide as well as 40-year use right of GE brand. In the same industry, Midea Group announced on March 17 that it had reached a MOU with Toshiba Corporation to acquire its white household appliances business so as to gain the controlling right to this respect.
Moreover, domestic enterprises have become the important participants merging with magnates in the global M&A market. Taking global agricultural industry as an example, the six largest magnates in agricultural chemicals, such as BASF, Syngenta, Bayer, Dow, DuPont and Monsanto, once faced M&A rumors. At the 2015-end, Dow and DuPont merged, and the new company became the second largest chemicals magnate worldwide only after BASF, and the largest seed and pesticide company over Monsanto. Bayer recently announced that it plans to acquire Monsanto with 62 billion U.S. dollars. The biggest transgenic seeds provider and agricultural chemicals manufacturer will establish, if such M&A transaction smoothly processes. Previously, Sinochem Group stated to approve the public offer to acquire another agricultural chemicals magnate Syngenta with 43 billion U.S. dollars (around 281.7 billion yuan), which has been the biggest overseas M&A case of domestic enterprises up to now.
(APD/XH FINANCE)
