Spoiler Alert: China
Chinese companies venturing overseas are taking on a new mantle: deal spoiler.
Zoomlion's $3.3 billion bid for Westport, Connecticut-based Terex is the latest in a series of unsolicited takeover offers from Chinese companies aimed at derailing rival proposals. The crane and construction-machinery maker's cash offer values its U.S. counterpart at almost double a previously agreed bid from Finland’s Konecranes.
Among other unsolicited offers in recent weeks:
- A group led by state-controlled conglomerate China Resources bid $21.70 per share for Fairchild Semiconductor, trumping a $20 offer from ON Semiconductor for the iconic chipmaker.
- ChemChina offered $44 billion for Swiss pesticide and seeds maker Syngenta after the Swiss agribusiness group rejected Monsanto's sweetened bid last year. Monsanto is internally discussing the merits of a new offer, Bloomberg News reported.
- Haier Group agreed to pay $5.4 billion for General Electric's appliance business, after U.S. regulators thwarted a bid from Sweden's Electrolux last month.
Previously reluctant to enter into bidding wars, Chinese acquirers are also paying bigger premiums than in the past, with money appearing to be no object for these cash-rich or government-backed buyers. Haier's bid for GE's appliance business, for example, was more than 60 percent higher than the offer from Electrolux.
The average premium offered by Chinese bidders for overseas acquisitions was 37.6 percent last year, the highest in at least a decade. At the same time, China Inc is buying much more: The total value of outbound mergers, acquisitions and investments was $117.4 billion in 2015, almost double the $61.9 billion recorded for 2010 and up from a mere $15 billion in 2006, according to data compiled by Bloomberg (and excluding deals valued at less than $100 million).
Even when the premium isn't clear, the willingness of Chinese acquirers to pay cash makes offers attractive. Zoomlion, which is 60 percent owned by the Hunan provincial government, is proposing to pay $30 a share for Terex. That's about the same as the all-stock merger the U.S. company agreed with Konecranes in August, a tax-inversion deal that would have moved Terex's domicile to Finland. However, a plunge in Konecranes shares had eroded the value of its proposal (to about $16.5 per share, before the Finnish company jumped 9.1 percent on Tuesday).
Similarly, Monsanto's $46.5 billion cash-and-stock bid for Syngenta has been eroded by a drop in the former's stock, giving ChemChina's all-cash proposal the edge.
On the face of it, Zoomlion shouldn't be able to afford Terex, which rebuffed a proposal from the Chinese firm three years ago. The Chinese company, struggling with exposure to China's real estate construction industry, posted slower sales last year and has a market value of $4.45 billion, barely $1 billion more than what it's offering for Terex. The company had a net debt-to-Ebitda ratio of 39 times as of June 30. Terex's is about 3 times, in line with the average for the global construction machinery industry, according to Bloomberg data.
So far, China's acquisition spree has been driven by a hunt for brands or technology that can be brought back home. With Syngenta, ChemChina gets important seed technology that will allow it to engineer disease-resistant crops, while Fairchild's appeal lies in chips that can regulate power so that cellphone batteries last longer.
For some, finding growth outside China may be a motivation. GE's consumer appliance business is strong in the U.S., while Terex draws about 60 percent of sales from the U.S. or Europe. The yuan's sliding value -- and forecasts of further weakness -- are a further reason to put money into overseas assets that may have better prospects of holding their value.
None of these factors is likely to diminish soon, so China's gatecrashing of overseas deals may have some way to run. At least until Beijing calls a halt.
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