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““There are two winds in the world today, There are two winds in the world today, the East Wind and the West Wind…the East Wind and the West Wind…
the East Wind is prevailing the East Wind is prevailing over the West Wind.”over the West Wind.”
Chairman Mao, 17 November 1957
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Agenda
I. China’s Outbound M&A
II. Why should Chinese companies consider Outbound M&A?
III. Why should a Chinese company choose the U.S.?
IV. Steps of M&A Process
V. Strategies for Success
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I. China’s Outbound M&A Chinese companies have been investing in foreign companies for
more than 20 years.
According to People’s Daily, in 2009 China could invest $150 billion
U.S. dollars overseas. This is three times more than last year’s figure
of U.S. $52 billion.
China’s role in the global economy will shift from “manufacturer” to
“capital exporter.”
Transactions in the energy, mining and utilities sectors continue to
dominate Chinese M&A purchases abroad, accounting for 29 percent
of the total outbound deal flow by volume since 2003.
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Comprehensive revisions in 2008 and 2009 to China’s regulatory regime have made Chinese antitrust and M&A policies more comparable to those in North America and simplified the approval regime.
North American-based businesses have been preferred targets of Chinese acquirers over the 2003-Q32009 period, with some 106 acquisitions, accounting for 24% of the announced total.
Estimates indicate Chinese companies have invested US$15 - $20 billion in the U.S., including China Investment Corp.’s $5.0 billion purchase of a 10% stake in Morgan Stanley and the $3.0 billion deal for a 10% stake in Blackstone.
China’s Outbound M&A, continued
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Largest Chinese Mid-Market Deals into the U.S. 2007 ~ 2009 by Disclosed Deal Value
DateDeal
StatusAcquirer
Value(US$M)
% Acquired/S
oughtTarget Target Sector
Sep-07 W Huawei Technologies Ltd. 363 16.50 3Com Corp Telecommunications
Oct-07 C China Minsheng Corp. 317 10.00 UCBH Holdings Financials
Mar-08 C China Life Insurance Co. Ltd 300 N/A Visa, Inc. Financials
Mar-08 C Mindray Medical International Ltd. 209 100.00Datascope-Patient
Monitoring Business
Healthcare
Jan-08 C WuXi Pharmatech Inc. 153 100.00AppTec Laboratory
Services Inc.Healthcare
Jun-09 PSichuan Tengzheng Heavy Industrial Machinery Co.
150 100.00General Motors Corp. - Hummer
DivisionIndustrials
Jun-09 P COFCO Ltd 139 4.95Smithfield Foods
Inc.Industrials
May-07 CJiangxi Greatsource Display
Technology Co.95 70.00 VOMagic Corp. High Technology
Mar-09 P BeijingWest Industries Co. Ltd. 90 100.00
Delphi Corp. - Brakes &
Suspension Business
Industrials
Nov-07 C Spreadtrum Communications, Inc. 76 100.00Quorum Systems
Inc.High Technology
C = Completed P = Pending W = Withdrawn
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II. Why Should Chinese CompaniesConsider Outbound M&A? Buy or Build?
Cheaper
Faster
Time to Market Accelerate business objectives
Leverage opportunities
Increase Market Share “Survival of the Fittest”
Eliminate competition
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Why Should Chinese CompaniesConsider Outbound M&A?, continued
Acquire Intellectual Property Avoid potential infringement issues
Vertical or Horizontal Integration Increase margins
Economies of Scale Improve efficiencies
Synergies between products, markets or personnel “Sum of the whole is greater than the sum of the parts”
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III. Why Should a Chinese CompanyChoose the U.S.?
Lower valuation of U.S. targets
Strength of the RMB
Less Competition from U.S. buyers
Opportunity for Chinese companies to reposition
themselves in the global marketplace
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IV. Steps of M&A Process
Identify Target
Valuation What price will Chinese company have to pay?
Letter of Intent Outlines price and general structure of deal
Due Diligence Exchange of information
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Steps of M&A Process, continued
Definitive Agreements
Integration Planning
Transition Strategies
Regulatory Approvals
Closing
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V. Strategies for Success
Devise sound M&A strategy
Define Objectives
Select proper target
Analyze financial impact
Strengthen internal M&A capabilities
Strong CFO
Thorough due diligence
Understand regulatory regime
Manage political or social concerns
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Smooth transition Identify and retain key employees
Implement necessary changes
Overcome geographical and cultural gaps
Develop strong corporate governance Experience is critical
Learn from mistakes of others
Enhance internal and external communication Integrate offices
Enhance interaction of key employees
Strategies for Success, continued
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Jeffrey A. Rinde Partner
New York, NY
v. 212.885.5335 [email protected]
www.BlankRome.com
Jeffrey A. Rinde focuses his practice on corporate and securities aspects of cross-border
business between the United States and Asia. Mr. Rinde represents clients in a wide range
of industries including agriculture and food, alternative energy, healthcare, manufacturing,
real estate, technology, media, and wholesale and retail, among others. Mr. Rinde also
represents emerging and established Chinese companies, with particular emphasis on
companies operating in Mainland China, in complex transactions to help expand their
businesses, access capital, and list in the United States.
Additionally, Mr. Rinde represents issuers and merchant and investment banking firms in
public and private securities offerings, and buyers, sellers, and financial advisors in a wide
variety of public and private business combinations.