China Enters the World M&A Stage

Yahoo  Sep 5  Comment 
Sep.04 -- The potential telecom mega-deal in China could provide an unusual significant benefit to two U.S. telecommunications firms seeking to merge. Bloomberg's Su Keenan reports on "Bloomberg Markets: Asia."
Yahoo  Sep 4  Comment 
A potential megadeal between Chinese wireless carriers could give a boost to two companies half a world away: T-Mobile US Inc. and Sprint Corp. China United Network Communications Group Co. is said to be exploring a merger with China...
Financial Times  Aug 7  Comment 
Threshold to veto deals will be lowered as concern grows over Chinese acquisitions
Insurance Journal  Jul 25  Comment 
Chancellor Angela Merkel’s top counterintelligence official said Chinese acquisitions of high-tech companies in Germany represent a potential national-security threat. The head of Germany’s top domestic intelligence agency, Hans-Georg Maassen,...
Reuters  Jun 27  Comment 
U.S. President Donald Trump said on Wednesday he will use a strengthened national security review process to thwart Chinese acquisitions of sensitive American technologies, a softer approach than imposing China-specific investment restrictions.
Channel News Asia  Jun 27  Comment 
The rapidly deteriorating trade and investment relationship between Washington and Beijing is sending a further chill through Chinese dealmakers who have already seen the number of Chinese acquisitions of American assets take a big hit.
Channel News Asia  Jun 26  Comment 
President Donald Trump said on Tuesday that sensitive U.S. technology can be protected from acquisition by China through the committee that scrutinizes foreign acquisitions of American companies, but the ultimate method was still being worked out.
MarketWatch  Feb 22  Comment 
Xcerra Corp. called off its acquisition by a Chinese entity Thursday afternoon, the latest attempt at a Chinese purchase of a U.S. chip company to be scuttled amid resistance from the U.S. federal government. Xcerra said it and Hubei Xinyan...
Financial Times  Feb 8  Comment 
Personal relationships and low prices are crucial to winning big legal mandates
Reuters  Jan 18  Comment 
Beijing-based Naura Microelectronics Equipment Co Ltd has completed a deal to buy U.S. semiconductor manufacturing equipment company Akrion Systems LLC, in a rare instance of the U.S. government approving such an acquisition, attorneys for Naura...


As China increasingly becomes a player in the acquisitions of foreign companies, certain companies are poised to benefit. Investment banks with a strong China franchise, such as Goldman Sachs Group (GS), Morgan Stanley (MS), Merrill Lynch (MER) and boutique firm 7 Mile Advisors may generate increasing fees advising Chinese clients on mergers and acquisitions in the U.S.

On the other side, industries where a strong product brand name has not transitioned its own manufacturing to China may face margin pressure if a competitor is bought by a large Chinese enterprise and its production is moved offshore to China.

China's Opening Dance in the U.S.

China’s thirst for fuel entered the world stage with its bid for Unocal. In June 2005, as oil prices hit $60 per barrel over concerns in the Middle East, the most surprising business news was China National Offshore Oil Corporation’s (CNOOC) unsolicited bid of $18.5 billion for Unocal, which had previously agreed to a $16.4 billion merger with ChevronTexaco (CVX).

CNOOC is one of China's largest state-controlled oil companies - one of the four big oil groups that emerged after the 1999 restructuring of China's oil industry. At that time, CNOOC was given offshore exploration and production assets. It worked closely with foreign oil majors to improve its offshore technology. Oil analysts say CNOOC has the Chinese oil sector's most professional management team, as a result. CNOOC's shares are traded in Hong Kong and New York as a well on the domestic Shanghai exchange.

The Target: UNOCAL

Unocal was a large U.S. exploration and production (E&P) company with huge gas reserves in 14 countries - 70% of which were in Asia. Unocal also offered Asia's largest storehouse of liquefied natural gas. Meanwhile Unocal’s U.S. reserves amounted to only about 1 percent of America's oil consumption – and none of it was supplied to the U.S. military. Industry observers expected that CNOOC would keep Unocal's Asian assets, and sell off the rest of the company. By combining with Unocal, CNOOC could grow from an offshore oil producer with high expenses to a diversified global oil and gas company with reserves around the world.

The average investor did not awaken to China's influence on the energy market until CNOOC's failed bid for Unocal. This bid highlighted not only the extent of China's demand for energy, but also the domestic U.S. politics that impact otherwise commercial energy investments. This article discusses why China sought to wrest UNOCAL away from impending-purchaser Chevron, the insufficient steps taken to secure approval of the deal from U.S. authorities, and the implications for future Chinese purchase of U.S.-controlled energy resources.

The Strategy to Gain Approval

To allay concerns in Washington, CNOOC hired Public Strategies, the public relations firm whose vice chairman, Mark McKinnon, led President Bush's media campaign in 2004. And it hired Goldman Sachs and J.P. Morgan as financial advisors and high-end legal and lobbying firms Akin Gump Strauss Hauer & Feld and Davis Polk & Wardell.

CNOOC offered to sell Unocal’s pipeline connected to the American strategic oil reserves and its unique rare-earth mine, if necessary to close the deal. And CNOOC promised not to sell supplies from Unocal's U.S. oil and gas reserves outside the country and said it would retain substantially all of the American employees. Nonetheless, many in Washington still balked at Communist Chinese ownership of such a precious asset.

The Result

Ultimately, on August 2, 2005 CNOOC decided to drop its $67 per share offer for Unocal after facing intense political pressure in Washington. In parting, the company stated that it would have raised its bid yet again “but for the political environment in the U.S.”. In the end, Unocal was bought by Chevron after all, at $64 a share – lower than CNOOC’s bid, but higher than CNOOC’s offer was less attractive than Chevron’s, despite its higher dollar value, because of the expected difficulty for CNOOC to gain regulatory approval for the takeover.

The UNOCAL Lesson

When considering China's pursuit of energy and other scarce natural resources, remember that factors beyond basic economics may have a huge impact on a proposed transaction. Here, the Chinese were willing to pay significantly more than Chevron, but politics rendered their offer moot. Investors in natural resources need to consider these political factors, especially with the Democratic takeover of the House and Senate as well as the forthcoming U.S. Presidential elections, when valuing China plays.

Significant Transactions


Appliance retailers remember 2005 as the year that the Maytag Man almost developed a Chinese accent. China’s Haier Group Co., joined by private equity firms Bain Capital and Blackstone Group, launched a $1.28 billion acquisition bid for Maytag Company, where it sought to combine the venerable U.S. brand name with access to low Chinese labor costs. In the end, Whirlpool stepped up with a $1.37 billion bid to trump the Chinese offer.


The acquisition of IBM's personal computer business by Chinese giant Lenovo was announced December 8, 2004. In addition to bringing U.S. technology to China, the IBM acquisition is bringing management experience to the Chinese computer maker because a consortium of U.S. investors who contributed $350 million to the purchase will control key board committees.

Lenovo now has its executive headquarters in the city of Purchase, New York. The company's principal operations remain in Beijing, China and Raleigh, North Carolina, with R&D facilities in Beijing, Shenzhen, Xiamen, Chengdu, and Shanghai, China; Tokyo, Japan; and Raleigh.

Lenovo's primary PC manufacturing and assembly facilities will remain in Shenzhen, Huiyang, Beijing, and Shanghai, China. Lenovo's mobile handset assembly facilities are in Xiamen, China. Additional manufacturing and distribution facilities are located in the United States, Mexico, Brazil, Scotland, Hungary, India, Malaysia, Japan, and Australia. Lenovo's PC distribution network includes approximately 4,400 retail outlets in China for the consumer business.

The company is also boasting a worldwide workforce of more than 19,000 people.


On May 20, 2007, China's new state investment firm said it planned to make a $3 billion investment in the Blackstone Group, a major U.S. private equity firm which just recently had its June 2007 IPO debut.

China announced in March 2007 that it was setting up a foreign exchange investment company to help diversify part of its $1.202 trillion of foreign exchange reserves, the world's largest, to improve returns and diversify risk. The foreign exchange investment company will invest in Blackstone through the purchase of non-voting common units of Blackstone.

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