Giant on the move
Chinese regulators might think that a tough stance on takeovers prevents domestic bidders from overpaying for overseas targets. This approach has helped prevent unwise deals. But, as the takeover of General Motors Co's Hummer business shows, Chinese bidders may have to pay more to compensate for the regulatory risk at home.
Deep-pocketed Chinese buyers are increasingly appearing as potential buyers of assets overseas. But as well as grappling with protectionism in target countries, they also face unpredictable regulatory decisions at home. Foreign sellers are increasingly demanding that Chinese bidders pay more to compensate for these risks.
There have been many reports over the last few months that Beijing would not allow Sichuan Tengzhong Heavy Industrial Machinery to buy the manufacturer of gas-guzzling cars. The concern was that a deal would fly in the face of Beijing's goal to reduce carbon emissions. There were also doubts about Tengzhong's ability to manage a foreign brand.
The debate did not kill off Tengzhong's bid. However, it may have lengthened the negotiations, which have taken a year. GM had little choice because it had no other credible bidders lined up. However, other sellers that have a choice of buyers are unlikely to wait that long.
Moreover, there is a possibility that Tengzhong might have been forced to pay a bit more to convince the seller that they can pull it off. The final purchase was reported to be $150 million for the ownership of the brand, though this does not include key technologies which remain largely off-limits to the Chinese.