Sichuan Tengzhong Heavy Industrial Machinery Co. Ltd. (Tengzhong) has submitted plans to buy General Motors Corp's Hummer to Chinese government regulators and if approved, the deal will be inked by the third quarter of this year, the Shanghai Securities News reported on June 15. Tengzhong's CEO Yang Yi also indicated readiness to take on the likely short-term losses both psychologically and financially.

Yang answered the questions about the acquisition of Hummer yesterday.

The first question is whether the deal will win approval from the government authorities. "According to the governmental regulations, for a contested buyout or purchase overseas, the plans must be submitted to the National Development and Reform Commission (NDRC) before the purchase process or the formal launch of business activities. NDRC will issue relevant confirmation letters within seven working days after receiving the plans," Yang said.

Yang explained that Tengzhong did not provide any "written" plans before signing the Memorandum of Understanding, but only an oral plan which was refused. "The company has established a special group to take charge of the matter, which has now submitted a written plan to NDRC and the Ministry of Commerce, and will complete all the procedures in cooperation with the authorities," Yang added.

"Tengzhong hopes that the takeover will be completed during the third quarter, but is no longer certain about the acquisition – without the necessary approvals from the government the project will fall by the wayside," an insider explained.

The second question is whether Chinese buyers will represent a real market for the vehicles after acquisition of the assets. It is known that the Hummer is a gas-guzzling vehicle in conflict with the principles of energy-conservation and environmental-protection. However, Yang tried to plead for the Hummer, saying "The company is actively concerned with the new-energy hybrid vehicle industry, a factor that has been taken into consideration in this takeover project." But Chen Qingtai, vice director of the Development and Research Center of the State Council, was not optimistic, pointing out that any acquisition must be market-oriented, and the Hummer has limited commercial viability in the Chinese market.

The third concern is whether Tengzhong is capable of making a success of Hummer. Yang is enthusiastic, saying "We should be a patient investor - no one can reach an ambitious target in a single move."

Though the deal structure is based on a low price, high variable costs, and no transfer of debt, which relieves Tengzhong of any debt burden, it will take over immediate responsibility for corporate losses, Yang said.

Chinese story link:

http://paper.cnstock.com/html/2009-06/15/content_70973690.htm

(China.org.cn by Jessica Zhang, June 15, 2009)