Deals

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

Call it Europe's new China M&A discount. Investors marked down Syngenta and Aixtron shares by about 7 percent at one point on Monday because of fears that European regulators might delay or block their acquisition by Chinese suitors.

There's no certainty either deal will be scuppered. But it's reasonable to assume European targets will trade at a bigger discount to a Chinese bidder's offer after today.

M&A Discount
Both Syngenta and Aixtron trade at a steep discount to the Chinese offer price
Source: Bloomberg Gadfly calculations

Berlin initially gave a thumbs up to Aixtron's 670 million euro ($728 million) takeover by China's Grand Chip Investment. But it's now gotten cold feet about the sale of the German semiconductor equipment maker and has reopened its review. Meanwhile, ChemChina's $43 billion acquisition of agrichemical group Syngenta looks to be heading to a more rigorous "phase two" review after the buyer failed to offer concessions.  

Though the smaller of the two deals, Germany's Aixtron intervention is arguably more significant. Tension about Chinese takeovers has been building in Germany for a while, and I've argued before that Berlin was being too laissez-faire about selling off its technology to China.

So far this year, Chinese companies have announced more than $11 billion of German takeovers, whereas the M&A flowing in the opposite direction remains pretty much zero. Europe has accounted for nearly half of China's overseas takeovers this year, according to this excellent piece from Bloomberg News.

Unbalanced Union
Chinese takeovers of German companies far exceed capital flowing the other way
Source: Bloomberg
Shows pending and completed takeovers by announcement date

That's to be expected, of course. China needs advanced technology to lift its productivity and living standards. By contrast, Europe's economy is in the doldrums and some countries -- Britain, for instance -- seem happy for China to send capital their way. Chinese buyers have been sensitive to European concerns about jobs and governance.

But let's not think this is a two-way street. China wouldn't hesitate to block a western country from acquiring one of its nascent high-tech champions. To operate in China, many western groups have had to form local joint ventures and transfer intellectual property. 

China's within its rights to protect its industry, but it shouldn't be surprised if Europe's governments belatedly catch on to the lack of reciprocity. The U.S. has shown no qualms about blocking deals that don't suit its interests. 

German economy minister Sigmar Gabriel wants the EU to be able to similarly veto deals if the acquirer's home country restricts foreign investment, according to Bloomberg News. While the rise of protectionism is worrying, his proposal seems reasonable under the circumstances. 

In the meantime, it's prudent to factor in a greater chance of China-EU deals not making the cut. Germany, in particular, has the clout to pursue a much more equal arrangement.

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