【10.12 Reuters】Beijing gate-keeping disadvantages Chinese buyers

微澜止水

Chinese regulators might think that a toughstance on takeovers prevents domestic bidders from overpaying foroverseas targets. This approach has helped prevent unwise deals. But,as the takeover of General Motors Co’s Hummer business shows, Chinesebidders may have to pay more to compensate for the regulatory risk athome.
Deep-pocketed Chinese buyers are increasingly appearing as potentialbuyers of assets overseas. But as well as grappling with protectionismin target countries, they also face unpredictable regulatory decisionsat home. Foreign sellers are increasingly demanding that Chinesebidders pay more to compensate for these risks.
There have been many reports over the last few months that Beijingwould not allow Sichuan Tengzhong Heavy Industrial Machinery to buy themanufacturer of gas-guzzling cars. The concern was that a deal wouldfly in the face of Beijing’s goal to reduce carbon emissions. Therewere also doubts about Tengzhong’s ability to manage a foreign brand.
The debate did not kill off Tengzhong’s bid. However, it may havelengthened the negotiations, which have taken a year. GM had littlechoice because it had no other credible bidders lined up. However,other sellers that have a choice of buyers are unlikely to wait thatlong.
Moreover, there is a possibility that Tengzhong might have beenforced to pay a bit more to convince the seller that they can pull itoff. The final purchase was reported to be $150 million for theownership of the brand, though this does not include key technologieswhich remain largely off-limits to the Chinese.
Beijing has used its veto power several times in the past few years.For example, in July 2008 the cabinet rejected a request by ChinaDevelopment Bank to raise its stake in Britain’s Barclays Plc. Thatdecision looked smart when market turmoil hammered Barclays shares afew months later. However, it has added to the nervousness amongforeign companies about whether Chinese investors are reliable.
While it is important to have the regulatory checks and balances inplace, Beijing can do its own companies a favour by acting moreprofessionally. China used to be in shrouded in darkness. Now it is ina transition phase, where many people who have little to do with thedecision making process are eager to express their views.
Foreign media, meanwhile, can also do a better job interpretingmessages from Beijing. They need to understand that there is a bigdifference between the regulator, people close to the regulator, andthe state media. All the conflicting messages only make Western sellersmore nervous.
When there is a choice of buyers, Chinese companies are at adisadvantage compared to Western rivals. Beijing Auto almost missed thedeadline to bid for GM’s Opel, probably because it had to talk tovarious constituencies first and agree on a proposed price. This is notto say that U.S. protectionism and regulatory hurdles have not thwartedChinese bidders. But China’s lack of responsiveness and inflexibilitymake it even more difficult for Chinese companies to win highlycompetitive bids.
Some might argue that this is a good thing. After all, most mergersand acquisitions fail to justify their purchase price, and competitiveauctions tend to have an even lower success rate. However, it mightcome as a surprise to the Chinese government, which is encouragingChinese companies to make more strategic acquisitions abroad, that itsgate-keeping could be hurting the very companies that it wants toprotect.




Wei Gu
Greater China Columnist, CFA
On China's economy, finance, andcross-border transactions. Born and raised in Shanghai, Wei joinedReuters in New York in 2002 and have been writing columns in Chineseand English from Hong Kong since 2005. |


http://blogs.reuters.com/columns/2009/10/12/beijing-gate-keeping-disadvantages-chinese-buyers/