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Dealmaking is getting politicised, fast. 

Beijing signalled on Monday on that it is preparing to hit back further at western efforts to curb Chinese acquisitions of sensitive technologies.

China’s commerce ministry released new draft rules that would mean foreigners trying to acquire “strategic” stakes could face an expanded set of national security reviews. 

Andrew Polk at Trivium, a Beijing consultancy, said: “The [Communist] party wants to draw clearer lines around what is and is not permitted in terms of foreign investment.”

The move, which also includes some loosening measures, adds to a week’s worth of news flow around politics and dealmaking that could seriously alter the dynamics for cross-border dealmaking for years to come. 

Here’s a quick recap of last week’s events:

  • Britain unveiled proposals to increase its government’s ability to block foreign acquisitions that raise national security concerns.

  • US lawmakers passed a bill that strengthened the Committee on Foreign Investment in the United States (Cfius), which has the power to veto foreign investments that may poise national security concerns.

  • Berlin intervened to stop State Grid Corp of China from acquiring a stake in high-voltage power network operator 50Hertz. German media also reported that the government was about to block the acquisition of a local engineering group, Leifeld Metal Spinning, by a Chinese company.

  • Chinese regulators failed to provide long-awaited clearance to a planned takeover of Dutch group NXP Semiconductors by US rival Qualcomm, scuppering a $44bn deal. The inaction is widely seen as a reaction to trade wars launched by US president Donald Trump

It’s clear to DD that politics and dealmaking are now intertwined in ways that were unimaginable when 2018 started.

Is this how the multiyear boom in dealmaking comes to an end? 

Intelligent curation and exclusive information: This is Due Diligence, the FT’s daily briefing on corporate finance, private equity and M&A. DD is delivered to your inbox Tuesday-Friday at 5am UK time. Meet the team, catch up on previous editions and sign up here. Get in touch with us: Due.Diligence@FT.com

US bank M&A under a cloud

Investors are not happy with the uptick in regional bank M&A in the US.

Shares of some of the companies engaged in the consolidation have been walloped, casting a cloud over further dealmaking in the US banking sector even as Washington removes regulatory barriers to M&A and lower taxes give companies more financial firepower to pursue takeovers.

Brady Gailey, equity research managing director at Keefe, Bruyette & Woods in Atlanta, is blunt:

To see a stock market reaction like that is bad for bank M&A

The recent dealmaking includes Georgia-based Synovus’s takeover of Florida’s FCB Financial, creating a banking powerhouse in the south-east of the country with $44bn in assets. A 10th of Synovus’s market value has been wiped out since it announced the takeover, while FCB shares are down 14 per cent.

It adds to a growing list of companies that have seen their shares slide after announcing a takeover. Shares of Fifth Third Bancorp, a big banking force in the Midwest, shed 8 per cent after it announced its $4.7bn purchase of MB Financial.

The stock declines come even as banks pay up for their targets. Buyers have paid an average 63 per cent premium to the book values of US bank takeover targets so far this year, according to S&P Global Market Intelligence, up from 30 per cent in 2016.

Brock Vandervliet, executive director at UBS, tells the FT’s Alistair Gray, that “many factors point towards more M&A”. Just one caveat:

But we’ve got to see a better investor reaction to it, or it’s just not going to happen.

Bankers and analysts said many investors would prefer executives to hand surplus capital generated by tax cuts to shareholders, rather than use it to build little empires. Still, bankers are finding appetite for dealmaking in the boardroom. 

Kelly King, BB&T’s chairman and chief executive, told investors earlier this month that the $223bn-in-assets lender was “ready to get back in M&A” and that four “pretty attractive candidates” had sounded out the bank about a possible acquisition. 

Shares in BB&T fell 4.6 per cent on the day.

The rules of engagement

The bankers who get poached by rivals or hang out their own shingles are the ones who are good at bringing in deals. But what happens if they are jumping ship while they have deals still in progress?

The current litigation between Perella Weinberg Partners and its former restructuring group led by Michael Kramer provides a glimpse into the world of engagement letters — client contracts with bankers — and how they can be enforced.

Recall that PWP fired Kramer and three other colleagues over Presidents’ Day weekend in 2015 (here is our Big Read on these events). PWP believed he had been plotting to start a rival boutique in violation of his employment terms. He countered that he had fallen out of favour with management and was fired so they could take back $60m in equity.

In Monday’s Inside Finance column, Sujeet Indap uncovered legal filings that show the ugly fight over Kramer’s existing clients — including MonsantoColt Defense, and Silver Point Capital — who PWP barred from working with Kramer per the terms of their engagement letter.

Do clients belong to banks or bankers? It is a perpetual question that a New York court overseeing this fight could help answer.

Job Moves

  • Papa John’s International has appointed Olivia Kirtley as its new chair, replacing founder John Schnatter, who resigned from the role at the US pizza chain operator this month.

  • Rajeev Vasudeva, who has run headhunting firm Egon Zehnder for the past five years, will step down as chief executive at the end of October, according to an internal memo sent to the firm’s partners. The memo was sent by Jill Ader, who defeated Vasudeva last month in an unprecedented election contest to determine who would become the next chair of the headhunting firm.

  • HSBC has named Surendra Rosha as the chief executive for its Indian business. Rosha replaces Jayant Rikhye, who runs the bank’s financial institutions group in Asia-Pacific.

  • Mizuho has hired Andrew Karnovsky as its new head of autos in North America, Bloomberg reported. He joins from RBC Capital Markets

  • Chris Harper, a partner at Baird Capital, is leaving the group after working there for 27 years, Private Equity News reported

Smart Reads

Death of Moore’s law What happens when ultra-fast technological progress begins to sputter. For a clue, take a look at the US semiconductor industry, where revenues are struggling to keep pace with the cost of investment. (FT)

Italian job The vision of Yves Perrier to turn Amundi into an asset manager that could compete with the likes of BlackRock has come under fire as funds drain rapidly from its Italian business. (FT)

Revolving door in the #MeToo era Dealmakers accused of sexual harassment at some of the world’s most powerful law firms are switching jobs without their new employers knowing about prior complaints against them. (WSJ)

Cratering Former investors in Dell must be hurting as they watch the company come back to the market with an estimated equity value of about $70bn — after Michael Dell and friends bought out the nearly dead company for $25bn. But shareholders will be wary of such deals in the future where directors claim to be taking on "headline risks". (FT)

McSting When the results of the McDonald’s Monopoly Game sweepstake came around, a group of mobsters and drug traffickers won for almost 12 years. They tried to defraud the fast-food chain of millions of dollars but the FBI finally took them down in a sting. Here’s a story that relieves a major disappointment from DD’s childhood. (Daily Beast)

News Round-up

Carlyle raises largest fund aimed at North American deals (FT)

GE puts digital assets on the block (WSJ)

Vodafone surges on report Elliott took stake in carrier (BBG)

Moonves to remain chief executive as CBS probes misconduct claims (FT + Lex)

Vivendi plans to sell up to half of Universal Music Group (FT)

Toshiba opens door to alternative buyers for NuGen nuclear unit (FT)

Private equity accelerates ’buy-and-build’ strategy (FT)

GVC forges US gambling joint venture with MGM Resorts (FT)

Here’s how much you earn working for Bain & Co. in the UK (eFinancial Careers)

US Foods to buy SGA’s Food Group for $1.8bn (FT) 

BP/BHP: shale and hearty (FT Lex)

Cement maker LafargeHolcim looks to M&A to accelerate sales (FT)

Follow the FT’s deals team

Arash Massoudi in London — @ArashMassoudi

Javier Espinoza in London — @JavierespFT

James Fontanella-Khan in New York — @JFK_America

Sujeet Indap in New York — @sindap

Don Weinland in Hong Kong — @donweinland

Eric Platt in New York — @EricGPlatt

Lindsay Fortado in New York — @lindsfortado

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