M&A

Smart shopper

Fosun pairs up with state partners in new round of overseas bids

Guo-Guangchang-w

He’s still buying: Fosun’s Guo

After kicking off the new football season with three consecutive victories, Wolverhampton Wanderers have been made favourites for promotion to the elite English Premier League by local bookmakers such as Ladbrokes.

Backed by the club’s new Chinese owner Fosun, Wolves splashed nearly £50 million on new players. Some of the signings were represented by Jorge Mendes, whose sports management agency Gestifute is another of the assets in which Fosun and its chairman Guo Guangchang have invested.

But the season is young and Wolves fans shouldn’t get carried away with their early success, especially as investments of just this type have become the target of a crackdown recently initiated by the Chinese authorities.

A diktat curbing overseas purchases of non-core assets is one of the highest profile policy moves launched by the government this summer. Beijing worries that too much of the M&A activity is a cover for capital flight, which might endanger the country’s financial security. Fosun, alongside other acquisitive conglomerates like Wanda Group and Anbang Insurance (whose boss has been detained for unspecified reasons) has been singled out by state media as among the bad boys (see WiC375). State broadcaster CCTV also focused on the splashy spending on foreign football clubs, warning that it might be a means of money laundering.

Some of the biggest spenders have put a brake on their overseas acquisitions (Wanda has just pulled out of a £470 million purchase of a major property project in southwest London and in WiC376 we detailed how it has also been ‘slimming down’ via asset disposals).

But Fosun has shown less sign of slowing down. Fosun Pharmaceutical, one of its units, confirmed in a stock exchange filing this month that it is bidding for a stake in American drug maker Arbor Pharmaceuticals. According to Chinese media, the deal values Arbor at about $3 billion and Fosun may make a joint offer bid with state-controlled counterpart Shanghai Pharmaceutical.

In July Fosun partnered with Sanyuan Foods, which is backed by the Beijing municipal government, to launch a Rmb5 billion ($750.5 million) takeover of French margarine maker St-Hubert. And earlier this month, the Shanghai conglomerate said it will be bidding for a controlling stake in German engineering firm Koller, alongside Nanjing Nangang, which is backed by the Nanjing government.

“Why has Fosun remained active in overseas acquisitions?” queried China Economic Weekly. Its sister unit Xinhua may have provided the answer, singling out Fosun’s bids for St-Hubert and Koller as the way forward for China’s outbound M&A. “After a series of eyebrow raising megadeals in recent years, a number of high-profile but less controversial deals are now grabbing the limelight,” it noted. “These new deals show the country’s foreign investment is stepping out of the fast lane into one focused on sensible investment and quality growth.”

Xinhua also interviewed Fosun’s Guo, who said his main headache in foreign investment had been his bigger-spending Chinese rivals, who have been driving up prices with bids that are hard to justify. Guo believes “such squandering” is at an end thanks to the authorities tightened supervision.

China Business Journal noted that regulators have laid down two broad principles for outbound investment. Firstly, leveraged buyouts aren’t allowed, and secondly, companies should focus on targets aligned with policies encouraged by the central government, such as technology innovation and (you may have guessed it) Xi Jinping’s Belt and Road Initiative.

Of course, Fosun seems to be signposting the way forward with a third, apparently unspoken rule: things will be easier if you bid in conjunction with a state-owned partner as well.


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