Chinese M&A Goes Global

In the second-largest acquisition ever by a Chinese bank, Shenzhen-based China Merchants Bank on June 3 won the battle for Hong Kong's Wing Lung Bank. The country's sixth-largest lender, China Merchants paid $4.7 billion, or 2.9 times Wing Lung's 2007 book value, to emerge victorious over rival bidders Industrial & Commercial Bank of China (ICBC) and Australia & New Zealand Banking Group.

Lots of other Chinese companies are in dealmaking mode, too. Chinese metals trader Sinosteel, for instance, is in a long, drawn-out hostile takeover battle for control of Australian iron ore prospector Midwest. Chinese mining company Shenzhen Zhongjin Lingnan Nonfemet is similarly engaged in a bidding war to buy Australian base metals miner Herald Resources.

As the flurry of activity shows, China Inc. is on a shopping spree. Having built up sizeable war chests thanks to recent public offerings, Chinese companies have already spent $31.1 billion on overseas mergers and acquisitions as of May 27, or more than they spent in all of 2007, according to Dealogic. "Chinese companies are larger, they're more ambitious, and they have more cash at this point," says David Michael, a senior partner at Boston Consulting Group. "They also realize that they are increasingly playing in global markets, where to have viable position in the long run, you may need to achieve global scale."

Taking a Stake in Global Blue Chips

Unlike Japan Inc.'s overseas buying in the 1980s, China Inc. has taken a more strategic approach. Instead of going for sexy, high-profile assets, such as Pebble Beach golf course or Rockefeller Center, Chinese state-owned enterprises and sovereign wealth funds are targeting mining companies, power companies, and financial institutions at bargain prices. "So far, state-owned enterprises are the primary driving force behind China's overseas acquisitions," says Wang Wei, chairman of China M&A Assn., a nonprofit trade association for lawyers, bankers, and accountants.

But many are taking a stake in well-known global blue chips rather than bidding for outright control. They seem to be wary of setting off a political firestorm, as China National Offshore Oil Company did with its short-lived bid for Unocal. "It doesn't necessarily mean that you stop doing deals," says Maurice Hoo, partner at Paul, Hastings, Janofsky & Walker.

Some Chinese companies are interested in buying a big-name brand. Lenovo's 2005 purchase of IBM's (IBM) PC division is one example. Haier, China's largest home-appliance maker, could be next. After dropping its $1 billion bid for Maytag in 2005, Haier is now in the running for General Electric's (GE) home appliance division, according to GE's chief executive, Jeffrey Immelt. It's up against rivals from Korea, Mexico, and Turkey (BusinessWeek.com, 5/29/08). "Working with GE's appliance business, [Haier] might be able to extend their global franchise," Immelt told reporters in Beijing on May 28.

Stronger Currency Fuels Buying Binge

Other companies are buying with China's voracious consumption of resources and double-digit growth in mind. Higher prices of oil, iron ore, and other commodities are making such deals a smart bet.

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