Deals

Gillian Tan is a Bloomberg Gadfly columnist covering deals and private equity. She previously was a reporter for the Wall Street Journal. She is a qualified chartered accountant.

Nisha Gopalan is a Bloomberg Gadfly columnist covering deals and banking. She previously worked for the Wall Street Journal and Dow Jones as an editor and a reporter.

China’s mergers and acquisitions landscape seems to be coming of age.

Residential developer China Vanke, which has a market value north of $40 billion, said Sunday it plans to disclose restructuring plans by mid-January as it faces a hostile takeover from a consortium led by its largest shareholder, Baoneng Group.

The deal itself is unprecedented: China Vanke is in the rare position of being targeted by a smaller, relatively unknown suitor in a country where negotiations, as opposed to Western-style M&A tactics, are the order of the day. Public confrontations are unusual and officials often weigh in to keep job losses at a minimum.

Also, companies that aren't state-owned tend to keep ties to state-owned entities. But China Vanke's previous largest shareholder, state-backed China Resources, found itself toppled by two of Baoneng's insurance affiliates that now own 22.45 percent of the group.

Corporates in China are becoming increasingly comfortable launching hostile bids for foreign companies. Witness Guangdong Rising Assets Management's bid for Australia's PanAust and China Petroleum & Chemical Corp's 2012 play for Hong Kong's China Gas Holdings. But they've been more restrained on home soil. While it hasn't gone hostile, a group led by China Resources' semiconductor arm this month made an unsolicited bid for Fairchild Semiconductor, taking the nation's tally of unsolicited outbound deals this year to almost $16 billion, a record.

Unwelcome Interest
Chinese companies have a longer history of unsolicited outbound M&A
Source: Bloomberg

For what it's worth, even though China Vanke's Shenzhen-traded shares have rallied 76 percent this year, a deal makes sense. The developer's Hong Kong stock is trading at a price-to-forward earnings multiple of 10.1 times, below the Chinese real estate sector average of 16.5, according to Bloomberg data.

High Rise
China Vanke's shares are peaking, but the company still looks inexpensive versus rivals
Source: Bloomberg

If Baoneng's overtures result in a deal, a new tone could be set for consolidation among Chinese companies.

Interestingly, China Vanke isn't the only one that's grabbed headlines this year with attempts to fend off a hostile bid. In April, Tianrui International increased its stake in bigger cement maker Shanshui Cement to 28 percent, in the open market and without its target's knowledge. After months of positioning during which Shanshui defaulted on its debt, Tianrui was successful in removing Shanshui's management board. Expectations other Shanshui shareholders China National Building Material and Asia Cement Corp. will make a takeover bid have not, however, come to pass.

Such apparent activism wasn't the case for pioneers in Japan. In 2004, Sumitomo Mitsui Financial Group's attempt to acquire UFJ Holdings came to naught after it was thwarted by Mitsubishi UFJ Financial Group.  Since then, just $187 million of hostile M&A transactions have been completed in the land of the rising sun.

It will take more than a handful of successful hostile Chinese M&A deals to encourage U.S. and European companies into the fray, but one or two would at least be a start.

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

To contact the authors of this story:
Gillian Tan in New York at gtan129@bloomberg.net
Nisha Gopalan in Hong Kong at ngopalan3@bloomberg.net

To contact the editor responsible for this story:
Katrina Nicholas at knicholas2@bloomberg.net