When people think of China’s landmark M&A transaction in 2010, it’s likely that most will opt for the highest profile deal: Geely’s purchase of Volvo. Here was a company that most people in Europe and the US had never heard of, buying one of the icons of the car industry. While Volvo’s vehicles are far from sexy, here was a deal that every M&A banker thought was. After all, it was bold, had the potential to transform the auto industry and epitomised the rise of China on the global stage.
Two fresh overseas acquisitions were announced in the past week. They got less fanfare, but like the Geely deal they could be historic.
The first saw China’s Ruyi offer to buy a 40% stake in one of Japan’s largest clothing companies. The Nikkei newspaper, which broke the news, reports that the Shandong-based textile firm will pay $45 million to become Renown’s biggest shareholder.
While the acquisition price is not large, the deal’s symbolism is. WiC has frequently reported on the fractious relationship between China and Japan (from issue 14’s piece ‘Bad neighbours’ to last week’s discussion of naval tensions). Should this purchase go through it will see a Japanese household name – whose brands include D’urban and Henry Cotton’s – come under the sway of a Chinese firm. Renown – which till recently owned Aquascutum too – is listed on Japan’s main board and with sales of $1.3 billion, is a big player in Japan with 30 brands and over 2,000 shops.
China Business News reckons it will be the “largest example of a Chinese firm acquiring a Japanese company”. This is a significant fillip to Chinese pride, which is notoriously touchy where Japan is concerned. China has nurtured over a century’s worth of grievances against Japan. For a lot of Chinese the Renown purchase will be viewed as something akin to a national victory.
If successful, the Renown purchase could prompt other Chinese firms to look for Japanese targets too.
China Business News points out that while Renown has been in decline – it lost $121 million last year – “it still ranks among the top 10 Japanese apparel operators and is considered a good opportunity for a low-cost acquisition.” It also fits with Ruyi’s broader strategy. The Chinese firm – which annually produces 20 million metres of worsted wool fabric and 20 million metres of denim – wants to shed its country’s image as a low cost textile maker and move downstream: controlling brands and retail distribution.
Li Weimin of Fortune Securities told the China Daily that Ruyi – the country’s eighth biggest textile firm – wants to develop overseas and “supported by its great financial strength, buy mature garment enterprises in China and abroad”. It will also boost sales of Renown’s brands in China’s own fast growing clothing market.
A Chinese firm ‘rescuing’ a major loss-making Japanese company says much about the way the world is changing. But the Financial Times thinks the second M&A announcement of the week is an equally important “watershed” event.
Pfizer has sold – for an undisclosed sum – a key animal vaccine to China’s Harbin Pharmaceutical. This was a concession the US drugmaker had to make to get Chinese antitrust officials to clear its $68 billion takeover of Wyeth. It shows the increasing power Chinese regulators have to shape the actions of multinationals – thanks to the clout of China’s economy.
“Lawyers rank the Pfizer ruling as among the most significant to date by China’s commerce ministry,” writes the FT. The ministry had determined that the merged entity would control more than half the Chinese market for mycoplasma hyopneumoniae, which is used to innoculate pigs against swine flu. Pfizer has accordingly sold its RespiSure business in China to Harbin Pharmaceutical – and has undertaken to spend up to three years to train the Chinese firm on how to produce the vaccine.
Pfizer retains international ownership of the vaccine, but the sale of what the FT terms the “coveted” Chinese business marks the first time Beijing has successfully forced an intellectual property divestment. Don’t expect it to be the last.
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