Chinese bend over backward for global deals
by Denny Thomas,
2016-03-02 05:47:51.0
HONG KONG — Chinese companies are offering to pay record break-up fees and are willing to settle for minority stakes in US mergers and acquisitions in an attempt to assuage concerns of potential overseas partners about regulatory snags scuttling the deals.
The unprecedented concessions come as China pursues record mergers and acquisitions abroad to offset slowing economic growth at home and a weakening currency.
They also come as US scrutiny of China-initiated acquisitions remains high, making its partners uneasy and forcing several deals to be abandoned.
"These are unusual behaviours and just show that the Chinese want to get the deals done," said one Hong Kong-based technology banker, who declined to be identified because the person was not authorised to speak to the media.
The stakes for China are particularly high in the technology sector as Beijing seeks to become a global semiconductor powerhouse, relying mainly on offshore mergers and acquisitions to achieve its goal.
The biggest concerns are about the Committee on Foreign Investment in the US (CFIUS), an interagency panel that scrutinises deals for national security concerns. CFIUS, which comprises 16 US government departments or agencies, does not publish its decisions or its reasoning for them.
Reflecting CFIUS worries, China’s HNA Group agreed last month to a hefty $400m in reverse termination fees for its $6bn purchase of electronics distributor Ingram Micro.
This was the first time any material break-up fee was introduced in a US deal covering CFIUS, bankers familiar with the matter said.
The usual break-up fee is about 1%-1.5% of a deal’s value, but HNA agreed to pay 6.6%. And China Resources Microelectronics and Hua Capital agreed to pay a total of $200m in termination fees, or 8% of the deal value, to buy Fairchild Semiconductor International.
The previous largest CFIUS-related termination fee was $30m when commodity trader Glencore offered $6.2bn to buy Viterra in 2012.
China’s goal to become a global semiconductor powerhouse has meant prized US tech assets are a focus of its overseas deals. The value of China’s announced outbound mergers and acquisitions into the US has already hit a record $23bn this year, more than double that of the whole of last year, according to Thomson Reuters data.
But in a sober reminder of the US regulatory hurdles, deals worth $10bn involving US targets have been pulled just this year alone.
Reuters
FALLING: A clerk counts 100-yuan banknotes. The currency lost 1.5% to the dollar in onshore trading last week. Picture: REUTERS/KIM KYUNG-HOON
HONG KONG — Chinese companies are offering to pay record break-up fees and are willing to settle for minority stakes in US mergers and acquisitions in an attempt to assuage concerns of potential overseas partners about regulatory snags scuttling the deals.
The unprecedented concessions come as China pursues record mergers and acquisitions abroad to offset slowing economic growth at home and a weakening currency.
They also come as US scrutiny of China-initiated acquisitions remains high, making its partners uneasy and forcing several deals to be abandoned.
"These are unusual behaviours and just show that the Chinese want to get the deals done," said one Hong Kong-based technology banker, who declined to be identified because the person was not authorised to speak to the media.
The stakes for China are particularly high in the technology sector as Beijing seeks to become a global semiconductor powerhouse, relying mainly on offshore mergers and acquisitions to achieve its goal.
The biggest concerns are about the Committee on Foreign Investment in the US (CFIUS), an interagency panel that scrutinises deals for national security concerns. CFIUS, which comprises 16 US government departments or agencies, does not publish its decisions or its reasoning for them.
Reflecting CFIUS worries, China’s HNA Group agreed last month to a hefty $400m in reverse termination fees for its $6bn purchase of electronics distributor Ingram Micro.
This was the first time any material break-up fee was introduced in a US deal covering CFIUS, bankers familiar with the matter said.
The usual break-up fee is about 1%-1.5% of a deal’s value, but HNA agreed to pay 6.6%. And China Resources Microelectronics and Hua Capital agreed to pay a total of $200m in termination fees, or 8% of the deal value, to buy Fairchild Semiconductor International.
The previous largest CFIUS-related termination fee was $30m when commodity trader Glencore offered $6.2bn to buy Viterra in 2012.
China’s goal to become a global semiconductor powerhouse has meant prized US tech assets are a focus of its overseas deals. The value of China’s announced outbound mergers and acquisitions into the US has already hit a record $23bn this year, more than double that of the whole of last year, according to Thomson Reuters data.
But in a sober reminder of the US regulatory hurdles, deals worth $10bn involving US targets have been pulled just this year alone.
Reuters
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