M&A

Parking cash in Mercedes

CIC to get $50 billion of new funds; will it buy into top German car firm?

Ready to willkommen CIC?

By any standards, $50 billion is a generous Christmas gift. But as Reuters reported on December 23, that was the amount of additional funding China Investment Corp (CIC) hopes to be getting in the fairly immediate future. The news agency said the $410 billion sovereign wealth fund will use the money to “buy overseas assets, especially in Europe”.

What might CIC purchase? News emerged in late December that Daimler could be an early target. Germany’s Manager Magazin quoted Daimler’s chief financial officer as saying the Mercedes-Benz maker is seeking to sell a 5-10% stake and that CIC is “the front runner” to buy it.

People’s Daily believes any deal would be designed to improve Daimler’s position in the world’s biggest car market. John Zeng, director of LMC Automotive Asia-Pacific Forecasting, told the state-owned newspaper: “I think its willingness to (sell a stake) to CIC is mainly a government relations strategy, showing its intention to build closer ties with the government.”

A deal also fits with changes in Beijing’s investment thinking: it has made clear a preference for buying high quality assets in the eurozone over dud government bonds.

It is also symbolic of a new era: one in which inward M&A is being outweighed by Chinese acquisitions abroad. According to Thomson Reuters data, Chinese outward M&A reached $81 billion last year; while acquisitions by foreign firms in China totalled $35.4 billion.

A couple of recent deals have epitomised the increasing breadth of Chinese ambitions. The Economic Observer reports that Shandong Heavy Industry Group has just bought control of Italy’s biggest luxury yacht maker, the troubled Ferretti Group. The deal is rumoured to be for €350 million and follows a certain industrial logic. Shandong Heavy’s parent Weichai Diesel had earlier bought a French nautical engine business and also plans to make cruise ships.

But it is in natural resources that the bulk of China’s M&A dollars have been flowing. The other newly announced transaction: a $2.1 billion merger of Yanzhou Coal with Gloucester. The tie-up – should it be approved by regulators – will see Yanzhou control 77% of the combined firm, which will emerge as one of Australia’s largest coal groups (the other big party in the transaction is Singapore-listed Noble).

As the Financial Times reports: “Overall, nearly 30% of all Chinese outbound deals this year involved an Australian target, making it the main destination for Chinese border-crossing mergers.”

The signs are that the amounts spent abroad will rise. Aside from CIC’s potential Daimler purchase, the Sunday Times reports that China Development Bank is the front-runner to buy RBS Aviation Capital, a major aircraft leasing business, for around $6 billion.


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