source from：WSJ
MARKETS
Chinese Companies: The New Uninvited Guests in M&A
An increasing number of Chinese deal-makers are facing push-back on their bids

By KANE WU
Updated June 6, 2016 12:43 a.m. ET
6 COMMENTS
HONG KONG—An increasing number of Chinese deal-makers are showing up to the negotiating table uninvited, and facing push-back on their bids.


The companies are often rushing headlong into global takeover battles— sometimes lobbing in rich offers after another bidder has already sealed a deal. So far this year, 13 Chinese companies have made a total of 78 billion dollars of unsolicited offers for overseas targets. That follows a record 17 such offers in 2015, according to Dealogic.


In the latest instance, home-appliance maker Midea Group made an unsolicited 5 billion dollars takeover offer for German robotics company Kuka AG after steadily building up a 13.5% stake in the company since August last year. The move prompted Germany’s economy minister to say the government wanted to form a consortium to “formulate an alternative offer,” given the company’s key role in Germany’s auto industry.


The surge in unsolicited bids partly reflects an overall increase in Chinese outbound mergers and acquisitions. The value of announced deals reached a new high of 119 billion dollars in the first five months of the year, according to Dealogic.


It also shows how brash Chinese companies have become in their global quest to buy choice assets. Unsolicited offers are relatively uncommon in the world of big M&As. Most buyers prefer to negotiate in private with a company’s management before making a public bid. Such private discussions often allow buyers to get more information about the target, to pin down the key terms, and to get the support of management and important shareholders.

In the past, China Inc. tried to strike a more diplomatic tone. Typically, the big state firms that were the most active overseas buyers tread carefully, taking minority stakes that brought little input into management. In 2007, for example, China’s sovereign-wealth fund invested 3 billion dollars into private-equity giant Blackstone Group LP ahead of its initial public offering, taking shares that gave it no voting rights and less than a 10% stake.


A new breed of Chinese companies are now throwing such caution to the wind. They are more willing to step into takeover battles despite an array of challenges, such as securing financing and winning government approval.


In one prominent example, Anbang Insurance Group Co. made a 14 billion dollars bid in March for Starwood Hotels & Resorts Worldwide Inc. after the luxury hotel chain agreed to sell itself to Marriott International Inc. The unsolicited bid triggered scrutiny into Anbang, including its ownership structure and political ties. Ultimately, Marriott raised its offer and Anbang withdrew its nonbinding offer, citing “various market considerations.”


In many cases, Chinese companies that make unsolicited offers haven’t done deals abroad before, and are off the radar of U.S. or European bankers looking to shop the target company around. Some eager Chinese buyers are also unfamiliar with the necessary documentation typically expected by the board of a U.S. or European company. In other cases, Chinese companies are looking to play spoiler as many global industries consolidate.


This surprise approach can be risky, even when Chinese companies are willing to pay a big premium, as they have done in many cases this year. Sellers unfamiliar with the Chinese bidder are increasingly seeking cash deposits in escrow accounts ahead of a deal. In many cases, the Chinese bidders forfeit the funds if it can’t secure financing or regulatory approval.


Almost half of the unsolicited offers made by Chinese companies over the past five years have failed, according to Dealogic data.

“Zoomlion was unable to provide a fully financed, binding proposal for the purchase of Terex, with or without the material handling and port solutions,” said Terex chairman David Sachs.


According to people familiar with the situation, Zoomlion, hadn’t been able to obtain a commitment letter of credit from state-owned Chinese banks, including China Development Bank, which was expected to be its major financier. Zoomlion disputes that account, saying the negotiations broke down over price.


Many companies targeted by Chinese bidders have searched for information on the prospective buyers and go to unusual length to win over sellers.


Whether Midea’s audacious bid for Kuka will succeed has yet to be seen. China’s industrial base is continuing to expand its use of robots in factories as Chinese wages rise. That could make Midea an attractive partner for Kuka if it can win over the German government and other shareholders. The company’s second-largest shareholder, closely held German engineering company Voith Group with a 25% stake, said it expected Midea to explain its plans in greater detail before deciding whether to support the bid.