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Foreign M&As tricky for Chinese firms
Source: Xinhua |
December 24, 2009, Thursday
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Print Edition
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THE year 2009 saw Chinese private companies - mostly "nobodies" before the global financial crisis - given a chance to take over some overseas industry leaders that suffered heavy blows in the financial crisis.
The latest high-profile case involves Geely Automobile, a 12-year-old Chinese car maker, which announced in November it would spend about US$1.5 billion to US$2 billion to buy the 82-year-old luxury Swedish brand, Volvo Cars, from Ford Motor Co, which paid US$6.45 billion for Volvo in 1999.
In the last few years, Volvo's sales had declined continuously in the slumping global auto market. In 2008, Volvo posted US$1.5 billion in losses. Hong Kong-listed Geely is growing fast thanks to a big sale boom in China, which this year replaced the United States as the world's largest auto market.
"Geely's market value totaled more than HK$30 billion (US$3.87 billion). There are banks willing to give Geely loans for merger and acquisition. So money is not the problem over Volvo's acquisition," Geely Board Chairman Li Shufu told Xinhua.
Ba Shusong, a renowned economist with the Development Research Center under the State Council (cabinet), the government's think-tank, agreed. "Chinese enterprises don't lack money in overseas merger and acquisitions (M&A)."
Chinese businesspeople and experts say overseas M&A can bring benefits, but it also brings high risks, and so far there have been few successful M&A transactions completed by Chinese private companies. Because of wide differences in cultures and law, Chinese private companies - most of which are young and fledgling - often balk at overseas M&A.
Li Wenfu, economics professor with Xiamen University, said Chinese private companies are too immature in negotiations and management of the acquired (foreign) company.
Haitian International Holdings Ltd, a Zhejiang-based plastics machinery manufacturer, turned down its overseas competitors' invitation for "business restructuring" last year.
"We can afford the price it asked for, but we cannot digest the company," Haitian's president Zhang Jingzhang told Xinhua. "We can even afford to buy two such companies, but we can't send out a proper management team. We are just inexperienced in handling any overseas acquisition," Zhang added.
Ba Shusong said the failure of China's first privately owned bank Minsheng to acquire the California-based United Commercial Bank (UCB) served as a lesson about loss caused by inexperience by Chinese enterprises.
The UCB went bankrupt last month, resulting in a loss of 824 million yuan to Minsheng, which had 9.9 percent of stake in the UCB. According to Ba, the US has strict regulatory restrictions on foreign investment in US banks. After the UCB was shut down last month, Minsheng had sought to acquire it but was rejected by the US Federal Reserve, which meant Minsheng's investment failed completely.
Ba said Japanese enterprises had experienced similar "golden chances" for overseas purchases in the 1980s when the Japanese currency value soared overnight. However, "many of the Japanese investments ended up with a failure, which can serve as a warning to Chinese companies," he added.
The latest high-profile case involves Geely Automobile, a 12-year-old Chinese car maker, which announced in November it would spend about US$1.5 billion to US$2 billion to buy the 82-year-old luxury Swedish brand, Volvo Cars, from Ford Motor Co, which paid US$6.45 billion for Volvo in 1999.
In the last few years, Volvo's sales had declined continuously in the slumping global auto market. In 2008, Volvo posted US$1.5 billion in losses. Hong Kong-listed Geely is growing fast thanks to a big sale boom in China, which this year replaced the United States as the world's largest auto market.
"Geely's market value totaled more than HK$30 billion (US$3.87 billion). There are banks willing to give Geely loans for merger and acquisition. So money is not the problem over Volvo's acquisition," Geely Board Chairman Li Shufu told Xinhua.
Ba Shusong, a renowned economist with the Development Research Center under the State Council (cabinet), the government's think-tank, agreed. "Chinese enterprises don't lack money in overseas merger and acquisitions (M&A)."
Chinese businesspeople and experts say overseas M&A can bring benefits, but it also brings high risks, and so far there have been few successful M&A transactions completed by Chinese private companies. Because of wide differences in cultures and law, Chinese private companies - most of which are young and fledgling - often balk at overseas M&A.
Li Wenfu, economics professor with Xiamen University, said Chinese private companies are too immature in negotiations and management of the acquired (foreign) company.
Haitian International Holdings Ltd, a Zhejiang-based plastics machinery manufacturer, turned down its overseas competitors' invitation for "business restructuring" last year.
"We can afford the price it asked for, but we cannot digest the company," Haitian's president Zhang Jingzhang told Xinhua. "We can even afford to buy two such companies, but we can't send out a proper management team. We are just inexperienced in handling any overseas acquisition," Zhang added.
Ba Shusong said the failure of China's first privately owned bank Minsheng to acquire the California-based United Commercial Bank (UCB) served as a lesson about loss caused by inexperience by Chinese enterprises.
The UCB went bankrupt last month, resulting in a loss of 824 million yuan to Minsheng, which had 9.9 percent of stake in the UCB. According to Ba, the US has strict regulatory restrictions on foreign investment in US banks. After the UCB was shut down last month, Minsheng had sought to acquire it but was rejected by the US Federal Reserve, which meant Minsheng's investment failed completely.
Ba said Japanese enterprises had experienced similar "golden chances" for overseas purchases in the 1980s when the Japanese currency value soared overnight. However, "many of the Japanese investments ended up with a failure, which can serve as a warning to Chinese companies," he added.
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