Industrials

Christopher Langner is a markets columnist for Bloomberg Gadfly. He previously covered corporate finance for Bloomberg News, and has written for Reuters/IFR, Forbes, the Wall Street Journal and Mergermarket.

On Tuesday, watching stock in West China Cement drop made the post-Brexit plunge in many British bank shares look tame. As investors scrambled for answers, one question seemed to recur: Could a proposed deal, under which China's largest private-cement maker Anhui Conch will take a controlling stake in its smaller competitor, be blocked?

Cement Shoes
West China Cement's 33 percent plunge was a record
Source: Bloomberg

The answer may come later on Wednesday, but investors have reason to be nervous.

West China Cement's shares tumbled by a record 32.7 percent Tuesday, before being halted Wednesday ahead of a statement to the Hong Kong stock exchange. The proposed transaction still needs approval from China's Ministry of Commerce, and there's a June 30 deadline.

From an antitrust point of view, there's a strong argument against the deal. A tie-up would hand Anhui Conch almost half the market in China's northwest Shaanxi province, and considering cement isn't a product that can be shipped cheaply, dominating production in a certain area is akin to having control. A merger, as Bloomberg Intelligence's Michelle Leung pointed out, could end a price war in that part of the country.

More broadly, Anhui Conch's heft has allowed it to capture almost a third of the net income of the entire industry, which in China is comprised of more than 3,300 companies. It's been on a buying spree too, taking over smaller firms to consolidate its position, the same strategy to the one it's employing with West China Cement.

Consolidated Position
Anhui Conch is still one of China's most profitable cement companies
Source: Bloomberg

Blocking the transaction should be a no-brainer, and probably would be anywhere else. This is China, though, and the Ministry of Commerce hasn't exactly been proactive in intervening in the past. Besides, such mergers do at least serve Beijing's attempts to reduce oversupply. Even state-owned China National Building Material has been getting in on the act.

Why should this deal be any different? It could be as simple as the Ministry of Commerce wanting to put a stop to Anhui Conch's growing clout. But at one minute to midnight and no indication either way, investors are concerned there's more to it than that.

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

To contact the author of this story:
Christopher Langner in Singapore at clangner@bloomberg.net

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