Deals

Chris Bryant is a Bloomberg Gadfly columnist covering industrial companies. He previously worked for the Financial Times.

German M&A bankers have been a busy bunch this year. If they haven't been involved in the monster Bayer-Monsanto deal, there's always the option of picking a domestic high-tech company and shopping it to China.

Monday brought confirmation that China's Sanan Optoelectronics has held talks with German lighting company Osram about a possible acquisition. Although Osram is a big fish even for China -- its market capitalization is almost 6 billion euros ($7.4 billion) -- the story is by now familiar.

Lights Out, Then On Again
Osram has had a rollercoaster year. Now it could become a takeover target
Source: Bloomberg

Europe needs to wake up to the fact that its best technology companies are being snapped up by overseas buyers at a rapid rate, and to decide whether its laissez-faire approach to these strategic takeovers is sensible.

So far this year Chinese companies have announced German takeovers worth $11 billion, according to Bloomberg data, including the $4.3 billion purchase of German robot maker Kuka, the $1 billion acquisition of machinery manufacturer KraussMaffei and a $760 million offer for semiconductor equipment specialist Aixtron.

For Sale: German Companies
Chinese takeovers of German businesses have surged this year. Osram would be the biggest yet
Source: Bloomberg

That's more than eight times the value of Sino-German deals announced last year, as Chinese buyers have cottoned on to the opportunity. They like German tech companies because of their know-how and access to western markets. Osram, for example, has attractive patents and prestigious car industry customers.

Deal-hunters have also spotted that while Germany's family-owned Mittelstand companies are reluctant sellers, listed tech groups are comparatively easy prey. A Chinese investor group pounced on Aixtron in May after its shares plunged because of the loss of valuable orders (from China, as it happens). Midea exploited the unwillingness of Kuka's anchor shareholders to stay the course.

Similarly, Osram might be vulnerable because former owner Siemens is thinking of selling its leftover 17 percent stake having fallen out with Osram's management over a factory investment. 

If it goes ahead, the worst Sanan can expect will be a bit of grumbling from German politicians. But the country's far less likely to mount a protectionist intervention than France, say, and is pretty powerless in these cases.

U.S. regulators are another matter. In January, the Committee on Foreign Investment in the United States blocked Philips from selling its Lumileds lighting business to China's GO Scale Capital. Unlike Lumileds, though, Osram doesn't produce LEDs in the U.S.

Like other Chinese buyers such as Midea, Sanan would also presumably be able to offer a price unconnected to normal deal metrics. German reports suggest it could offer about 70 euros a share, an almost 60 percent premium on the Osram price before takeover speculation.

And there may be a way to make the numbers look a little more appealing for the potential Chinese suitor. Before the poorly-received plan for the new factory, Osram shares were trading at almost 55 euros, roughly where they are today. If Sanan scrapped that cash-consuming Malaysian project, the purported premium might make more financial sense.

As we've seen before, the strategic imperative of securing high-tech assets is what's driving China's ambitions. Europe doesn't appear to have a strategy.

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

To contact the author of this story:
Chris Bryant in Frankfurt at cbryant32@bloomberg.net

To contact the editor responsible for this story:
James Boxell at jboxell@bloomberg.net