The roll call of takeover bids hitting the skids in China just keeps growing. Carlyle’s planned acquisition of Xugong Construction Machinery remains unconsummated, 10 months after the US private equity firm agreed to pay $375m for control. Also languishing in limbo are a bank, a bearings manufacturer and now a meat processor which caught the eye of Goldman Sachs.
It is tempting to conclude that one of the world’s toughest markets for mergers and acquisitions is getting tougher. New rules released this week would seem to support that. From next month, more deal proposals will require approval by the national Ministry of Commerce, the body that is responsible for the Xugong impasse. Acquisitions that will require the ministry’s approval include companies with a well-known brand or those that could have an impact on “China’s economic security”. It may be coincidental that these categories define China’s own acquisition ambitions overseas – think of oil or the purchase of IBM’s PC business. More importantly, however, both are open to wide interpretation.
The new rules, promulgated by a clutch of ministries, also show Beijing is getting wise to the innovative structures put forward by buyers: it will be far trickier to find loopholes to crawl through. All this plays well with public sentiment by eliminating inter-ministry bickering and accusations of foreigners snatching assets at bargain prices.
China bulls, legion whatever the outlook, will likewise find positive elements. The approval process will be more streamlined and all relevant ministries would appear to be on board: the previous set of rules sparked chaos by devolving more power to a ministry which seemed unaware of its new responsibilities. And the new rules give the green light to foreign all-stock mergers, although in practice few such deals are likely. The latest developments throw more obstacles in the way of foreign buyers but it will take much more than this to keep them out.