Jan 16, 2019 By LegalMiner
During the first half of 2018, a total of 126 cross-border M&A transactions are publicly disclosed
by Chinese A-share listed companies with 60 transactions in the first quarter and 66 in the second quarter.
The total transaction value is USD14.825 billion with USD6.323 billion for the first quarter and
USD8.502 billion for the second quarter. 10 out of the above 126 transactions constitute material
The top five transactions by transaction value are as follows:
Overall, during the first half of 2018, over 1/3 cross-border M&A transactions by Chinese A-share listed companies have a transaction value of less than USD10 million, while medium size deals (USD10 million to USD100 million) and large size deals (USD100 million to USD500 million) are relatively concentrated. Mega deals with over USD1 billion are only seen once every quarter.
Overall, among cross-border M&A transactions of the first half of 2018 referred to above, 34 buyers are from Shenzhen Stock Exchange Small and Medium Board, 38 from ChiNext, 38 from Shanghai Stock Exchange Main Board and 16 from Shenzhen Stock Exchange Main Board.
The data indicates that the overwhelming majority of Chinese A-share companies involved in cross-border M&A transaction for the first half of 2018 are private A-listed companies, accounting for approximately 80% of all above-mentioned companies, clearly dominators in the cross-border M&A market.
During the first half of 2018, the industries involved in the cross-border M&A transactions by Chinese A-share listed companies are diversified, with the manufacturing industry accounting for half of all such deals. In addition, the medical industry, mining industry, computers & telecommunications industry and scientific research & technical service industry have also seen increased interest from investors. The distribution of popular industries indicates that Chinese A-share listed companies are committed to industrial upgrade and technological innovation, and through their effort to open overseas markets by M&A deals, achieving international production and sales.
During the first half of 2018, the geographic distribution of targets involved in the cross-border M&A transactions by Chinese A-share listed companies is diversified, with Europe (accounting for 28.3%) and North America (accounting for 15.1%) as key investment regions. Furthermore, Hong Kong, Macao, Taiwan, Australia, New Zealand and Southeast Asia have also seen relatively large number of transactions. This indicates the rising interest in countries along the Belt and Road by Chinese A-share listed companies who have also paid special attention to traditional developed markets such as Europe and the United States.
As of now, we have only seen a handful of cases where Chinese A-share listed companies acquire overseas public companies, accounting for 12.8% for the first half of 2018. This indicates that factors such as transaction speed, convenience and certainty are very important for Chinese A-share listed companies to consider when contemplating overseas M&A. Compared with acquisition of non-public companies, an acquisition of a public company will face much more stringent regulatory oversight, such as strict deadlines for each transaction milestone, information disclosure and compliance. Moreover, the stock price of a public company is subject to instant fluctuation by market forces, which renders the result of a transaction highly volatile and uncertain. Therefore, an acquisition of a public company is much more challenging and complicated for Chinese companies.
During the first half of 2018, a majority of Chinese A-share listed companies choose core business M&A, accounting for about 87.8%. Since 2017, the State Council and relevant government agencies have strengthened the authenticity and compliance review for outbound investments while promoting and facilitating such investments. Irrational outbound investment has been effectively contained. The cross-border M&A activities by Chinese A-share listed companies will continue with the core-business M&A, which is consistent with the direction of China’s national economic development. In the meantime, Chinese companies will also actively seek upgrade and innovation of their core business in an effort to achieve sustainable development.
Cross-border M&A transactions by Chinese A-share listed companies have been going smoothly for the first half of 2018. This report will analyze the top ten deals by value, which may indicate the trend of Chinese A-share listed companies doing overseas M&A deals.
COFCO Biochemistry (Anhui) Co., Ltd. (USD1.213 billion):In June, 2018, COFCO Biochemistry (Anhui) Co., Ltd. planned to acquire from COFCO Biochemistry Investment Co., Ltd. 100% equity ownership of Hua Li Investment Co., 100% equity ownership of COFCO Biofuel Holdings Limited, and 100% equity ownership of COFCO Biochemical Holdings Limited, through issuance of its own shares. Upon completion of these transactions, Hua Li Investment Co., Biofuel Holdings Limited and Biochemical Holdings Limited will become wholly-owned subsidiaries of Anhui BBCA Biochemical Co., Ltd. Both the acquirer and the targets are in the corn deep processing business, which will benefit both parties in establishing a specialized company and a flagship in corn deep processing, resolving long-standing competition between COFCO and Anhui BBCA Biochemical Co., Ltd in a systemic manner, and better regulating affiliated transactions and protecting small shareholders.
Hebang Biotechnology Co., Ltd (USD1.074 billion): In March 29, 2018, Hebang Biotechnology (Hong Kong) Investment Co., Ltd, a wholly owned subsidiary of Sichuan Hebang Biotechnology Co., Ltd, completed the acquisition of 5,800,000 common stocks of an Australian agricultural company Elders Limited, representing 5.01% of outstanding shares of this Australian company. The value of this deal is approximately USD1.074 billion. Upon the completion of this deal, Hebang Biotechnology Co., Ltd will expand its pesticides and fertilizers to Australian and other international markets while introducing the advanced agricultural intelligent service system to promote Chinese agricultural modernization and competitive strength. In addition, ELD’s agricultural product trade business can also provide China with quality agricultural products.
Bohai Capital Holding Co., Ltd (USD 884 million): In March 23, 2018, Avolon Aerospace Leasing Limited, a wholly owned subsidiary of Avolon Holdings Limited, which in turn is a wholly owned subsidiary of Bohai Capital Holding, entered into an Asset Purchase Agreement and related agreements with Sapphire Aviation Finance I Limited. AALL planned to sell a portfolio of 41 aircrafts with leases by using the proceeds of the issuance of asset backed securities. The deal increases the company’s competitive advantage in the international aircraft leasing market and promotes the optimization of the asset structure.
Rongfeng Holding Group Co., Ltd (USD663 million): In February 11, 2018, Rongfeng Holding Group Co., Ltd and its related affiliate announced the plan to acquire no less than 75% shares of Ethniki Hellenic General Insurance S.A., a wholly-owned subsidiary of the National Bank of Greece, for USD663 million. This deal marks an important step for the transformation and development of Rongfeng Holding Group, which is a pioneer in the real estate industry. This initial exploration into the insurance industry is the first attempt by Rongfeng Holding Group to dabble in the financial sector. With the “Belt and Road” policy as the backdrop, Rongfeng Holding Group is able to take advantage of and maximize the potential in the Greece insurance market.
Kunlun Tech Co., Ltd (USD575 million): In February 15, 2018, Kunlun Group Limited planned to purchase 12.5% and 2.2% shares of OperaAS indirectly owned by FH (71,875,000 shares) and KFH (12,477,500 shares) respectively, for USD79,645,225 and USD13,806,002, based on the valuation (about USD636 million) of the rate of return agreed to by the Buyer Group Agreement (annual rate of 8%). The total transaction value for Kunlun Group Limited will be USD93,451,227. Upon the completion of this transaction, Kunlun Group Limited will own 48% shares of OperaAS. By taking advantage of the famous browsers, vast user base and mature internet ad platform owned by OperaAS, the company can unearth new growth potential and further diversify product lines, promote brand names and increase profitability.
Inner Mongolia Furui Medical Science Co., Ltd (USD520 million): In March 6, 2018, Inner Mongolia Furui Medical Science Co., Ltd announced its plan to acquire 3821, 1438, 1000, 3800 and 2375 shares of Echosens from Sino French Midcap Fund, Laurent Sandrin, Raphael Durand, Jean-Marc David and Claud Lenior, respectively. The total shares acquired are 12434 shares, representing 4.68% of total shares of Echosens, a French company. Upon completion of these transactions, Furui will own 133,774 Echosens shares (50.39%). The deals are used by Furui as an incentive for Echosens management, increasing Furui’s standing in Echosens. Beneficial to Furui’s effort to integrate hepatopathy diagnostic equipment business, this series of transactions will play a positive role in the company’s financial condition and operational performance in the future.
Tianqi Lithium Industries, Inc. (USD407 million): In May 17, 2018, Tianqi Lithium Industries, Inc. and its wholly-owned subsidiary Tianqi Lithium Chile entered into agreement with Nutrien and its three wholly-owned subsidiaries (Inversiones RAC Chile S.A., Inversiones El Boldo Limitada and Inversiones PCS Chile Limitada) to buy 62,556,568 A shares of SQM (representing about 23.77% of all outstanding SQM shares) owned by the Nutrien group for USD65/share. This deal can bring continued, stable and good investment return, diversify source of revenue, increase Tianqi’s ability to withstand risks and promote its competitive advantage.
Qingdao Haier (USD303 million): In April 24, 2018, Haier Singapore Investment and Haier Singapore Management entered into a Sale and Purchase Agreement to achieve Haier’s global strategy, strengthen brand distribution, develop coordination effect, increase profitability and fulfill certain commitment regarding capital markets in relation to horizontal competition. Haier planned to use Haier Singapore Investment to acquire 100% shares of Haier New Zealand owned by Haier Singapore Management, a cash deal. Upon completion of the deal, Haier will indirectly control 100% shares of Haier New Zealand, which controls 100% shares of Fisher & Paykel Appliances Holdings Limited.
Harbin Pharmaceutical Group (USD300 million): In February 13, 2018, Harbin Pharmaceutical Group entered into agreement with GNC Holdings, Inc. to buy 299,950 preferred shares issued by GNC for USD300 million cash. In February 22, 2018, Harbin Pharmaceutical Group announced ending its material asset restructuring and replaced it with outbound investment. GNC is considered a world renowned health products and related supplements brand. Through this deal, Harbin Pharmaceutical Group and GNC will establish and run a joint venture for GNC business in mainland China. The market size for health supplements globally in the year of 2016 is about USD120 billion and is expected to grow at a yearly compound rate of 4.6% between 2016 and 2020. The market demand in China for health products and supplements is considered significant in the near future. As a pioneer in medical supply and manufacturing in China, Harbin Pharmaceutical Group can use this deal to diversify product lines and fast become a pioneer in China’s health products and supplements.
Dongshan Precision Manufacturing Co., Ltd (USD293 million): In March 17, 2018, Suzhou Dongshan Precision Manufacturing Co., Ltd issued a proposal for material asset purchase, planning to use cash to acquire from Nasdaq company FLEX entities related to PCB manufacturing business, including five manufacturing companies in Zhuhai, two trading companies in Mauritius and Hong Kong, four holding companies in British Virgin Island and Hong Kong (collectively as “Multek”). The deal will facilitate the co-development of Dongshan Pricision and Multek and increase Dongshan Precision’s global market shares. As the biggest domestic company in the flexible circuit board industry, the deal will strengthen Dongshan Precision’s market position in the PCB industry and increase it global influence.
Fujian Start Group Co. Ltd. (USD262 million): In March 20, 2018, Fujian Start Group issued a proposal for material asset purchase and affiliated transactions. Specifically, Fujian Start Group planned to use its wholly-owned subsidiary Lifting Rise Limited to acquire from Mystery Idea Limited and Better Joint Venture Limited their 47.53% and 0.39% shares of Ren Tian Technology Holding Co., Ltd, with a cash offer. The total shares acquired will be 47.92% shares. Since Ren Tian Technology Holding Co., Ltd. is a listed company in the Hong Kong exchange and the shares Lifting Rise Limited planned to acquire exceeded 30%, it was required to make mandatory full tender offer to all qualified investors besides Mystery Idea Limited and Better Joint Venture Limited, and to perform tender offer obligation for outstanding stock options and convertible debt. This deal will effectively increase the rate of return for investors and further Fujian Start Group’s development strategy of “mobile internet + internet of things”, increase the business size of the IOT industry and profitability, and promote sustained development and ability to withstand risks as well as growth potential.
In the first half of 2018, there were 10 Chinese A-share listed companies engaged in cross-border M&A transactions that involve material asset restructuring. Specifically, four in the first quarter and six in the second quarter. Details are as follows:
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