On January 5, the Merger and Acquisition Guild under the All-China Federation of Industry and Commerce (ACFIC) and the Global Merger and Acquisition Research Center released the top 10 merger and acquisitions (M&A) deals in China in 2006. This is the seventh such listing since 2000.
Over half of M&A cases are initiated by domestic firms including Baosteel and Aluminum Group of China. They displayed a strong desire to reshape domestic industrial chains last year.
Compared with foreign-funded companies, many Chinese firms were restructured by capital in M&A cases, said Xia Bin, director of the official think-tank -- the Finance Institute under the State Council Development Research Center.
Insufficient financing channels were an important issue in relation to acquisition funds, Xia said at the news briefing. He's also vice president of the Merger and Acquisition Guild.
Normally there are three ways to raise money: bank loans, bond issuances and the stock market. However, only stock issuing is available in China. Xia called for the government to lessen restrictions on financing during M&A and allow financial institutions to participate in them.
Statistics from Dealogic, a leading international investigative company, show that in the first 11 months last year foreign companies acquired 735 Chinese enterprises. This is up 1.3 percent year-on-year. The transaction value was about US$30.2 billion, up 1 percent. But there were a total of 1,270 merger cases between Chinese companies, up 25 percent, while the transaction value rose 77 percent to about US$56.8 billion.
The top 10 merger cases are:
1. InBev buys Fujian Sedrin Brewery
On January 23, 2006, InBev, the world's largest beer brewery, acquired the whole of Fujian Sedrin, a major brewer in southeast China's coastal areas for about 5.886 billion yuan (then US$755 million). Since then InBev has become one of the largest brewers in China and holds a large market share from east to south China. It also indicates a market structure of oligarchy competition and another round of brand shuffling.
2. Aluminum Group of China acquires eight enterprises
Since January 2006, the Aluminum Group of China spent about 2 billion yuan (US$256.6 million) to acquire stakes in eight aluminum enterprises. It also acquired copper firms like Shanghai Non-Ferrous Metals (Group) Co Ltd for 540 million yuan (US$69.3 million). The series of acquisitions is attributed to the company's intention of building a complete aluminum chain and expanding into non-ferrous metal sectors.
3. Goldman Sachs buys Shuanghui Group
On April 28, 2006, Shuanghui Group, China's biggest meat processor, was sold to Rotary Vortex Ltd, 51 percent owned by Goldman Sachs, for 2.01 billion yuan (US$257.9 million).
4. Baosteel buys 5 percent stake in Handan Steel
On June 1, 2006, Baosteel Group said in a statement that it, together with its two affiliates, bought a combined 138.2 million shares of Shanghai-listed Handan Steel for a total of 481 million yuan (US$61.7 million), representing about 5 percent of the company's issued capital. Immediately, Handan Steel started anti-takeover measures. Also, Baosteel bought Xinjiang Ba Yi Iron & Steel Co Ltd and stakes in eight other steel producers.
5. Gome buys into Paradise
On July 25, 2006, Gome Electrical Appliances Holding Ltd, China's biggest home appliance retailer, announced a deal to acquire its rival China Paradise Electronics Retail Ltd for HK$5.268 billion (US$675.6 million). The merger of China's No.1 and No.3 appliance retailers rewrites the market pattern and imposes greater pressure on others like Nanjing-based Suning Corp, Beijing-based Dazhong Electronics and US giant Best Buy.
6. First backdoor listing - Guangfa Securities takes over Yanbian Highway
In September 2006, Beijing Guangfa Securities swapped stock with existing shareholders of Yanbian Highway Construction and renamed the contractor Guangfa Securities. The backdoor listing is the first of its kind among Chinese brokers. Other brokerages like Changjiang Securities, Everbright Securities and Sinolink Securities followed suit soon after.
7. China Resources restructures Huayuan Group
From March to November, China Resources Holding Co Ltd conducted a large-scale restructuring of China Worldbest Group Co Ltd and finally controlled 100 percent through its subsidiaries. Considering the eight listed firms under China Worldbest Group, China Resources has now controlled 12 domestically listed firms. It will soon become the leader in both the textile and pharmacy sectors.
8. Blue Star acquires French businesses
On October 26, 2006, China National Bluestar (Group) Corp announced that it had acquired the organic silicone and sulfide business of the French Luo Sulphadiazine Company. The transaction also includes the patents, production equipment and sales channels. After the acquisition, Blue Star became the largest Chinese investor in Europe. Its yearly production capacity of organic silicone will reach 420,000 tons and it'll become the third largest producer in the world.
In January, the company also acquired Adisseo, the world's second largest producer of animal nutrition supplements, for 400 million euros (US$518.7 million).
9. Transfer of PCCW stake
In June 2006, Hong Kong tycoon Richard Li Tzar Kai planned to sell his 22.7 percent stake in PCCW but was strongly opposed by China Netcom, the company's second largest shareholder. The stake transfer plans were also vetoed by minor shareholders. To consolidate its controlling position, China Netcom created a joint venture with a Spanish telecom company, holding a 28 percent controlling stake.
10. Citibank and China Life acquire stakes of Guangdong Development Bank
On November 16, 2006, a six-institute consortium led by Citigroup Inc, won the bid for an 85.6-percent stake of China's Guangdong Development Bank (GDB) for 24.267 billion yuan (US$3.114 billion). According to their plan, Citigroup, China Life Insurance Group and China Guodian Corp will hold 20 percent of GDB shares respectively, CITIC Trust 12.8488 percent, PricewaterhouseCoopers 8 percent and IBM 4.74 percent. The foreign stake, combining Citibank and IBM, is about 24.74 percent.
The stake transfer is a good chance for GDB to improve on its bad assets and governance. Though not holding a controlling stake, Citibank still makes a breakthrough by participating in the operations of a Chinese bank.
(China.org.cn by Tang Fuchun, January 11, 2007)