“Battle Royale” in Cross-Border Mergers & Acquisitions

Published:2014-09-23    Source:HICG

Cross-border Mergers & Acquisitions (“M&A”) indicates that a multi-national corporation acquires certain proportion of equity or assets of a foreign enterprise for development purposes. In recent years, Cross-Border M&A gains popularity among the Chinese corporations. Meanwhile, it is quite often that several Chinese corporations enter into a “Battle Royale” to compete for particular investment opportunities. For instance, Fosun International and Huayi Brothers compete for Studio 8(US).

Prior to the case above, the fight over the German Mechanical Giant Putzmeister between Sany Heavy Industry and Zoomlion in 2012 was known to the public. 

On 30th January, Sany Heavy Industry delivered a tender offer of 2.65 billion CNY for the 100% of equity acquisition to the shareholders of Putzmeister with the alliance of CITIC Private Equity. At the same time, Zoomlion announced that it will join the bidding as well with the exclusive approval from National Development & Reform Committee (“NDRC”). Zoomlion claimed that it was invited to bid for Putzmeister on 21st December 2011. As all cross border transactions require approvals from NDRC and other organizations in China, Zoomlion had already applied for permission to NDRC of Hunan Province. After being granted the approvals, Zoomlion signed a Non-Disclosure Agreement with Putzmeister. At the end, however, Sany won the bidding. There are many conjectures for the result: someone said Zoomlion got kicked out for violating the NDA, others said Zoomlion was convinced by the local authorities to give up the transaction.

Another case study was Unisplendour group (“UNIS”) and ShangHai Pudong Science & Technology Investment (“PDSTI”) competing for a NASDAQ listed Chinese firm RDA Microelectronics, Inc.

On 27th September 2013, PDSTI delivered a tender offer to privatize RDA at 15.5 USD per share; and the transaction was estimated at 745 million USD. On 25th October, UNIS announced that it would offer 18 USD for every share of RDA prior to 11th November; and the cost of this cross-border M&A would be 910 million USD. Dramatically, PDSTI gained approval from NDRC on 5th November, 6 days ahead of UNIS’s bidding. 

According to the relevant regulations, any domestic enterprise shall apply for permission from National Development & Reform Committee prior to make any Binding Agreement or Tender Offer. Any domestic enterprise shall not proceed with the transaction without the permission/approval.

Quoted from an international investment banker in Shanghai Huaran Investment Consulting, NDRC tried to avoid “Battle Royale” among the domestic players for one cross-border M&A. If all the major players of the same trade compete for one target, the players would not only put themselves at the wrong end of the stick in the transaction, but also possibly ruin their reputation.