Successful M&A leads to win-win results: analysts
Efforts by Chinese companies to acquire assets in Australia are sparking concerns, media reports said Monday, but analysts noted business deals in an increasingly integrated global market shouldn't be tied to political factors.
State Grid Corp of China (SGCC) and Hong Kong-based Cheung Kong Infrastructure Holdings Ltd, controlled by billionaire Li Ka-shing, were expected to make bids on Monday for a stake of more than 50 percent in electricity distributor Ausgrid in the Australian state of New South Wales (NSW).
The bids are likely to exceed A$10 billion ($7.5 billion), news portal ftchinese.com reported the same day.
SGCC declined to comment when contacted by the Global Times on Monday.
The proposed deal might be business-driven, He Weiwen, an executive council member at the China Society for WTO Studies, told the Global Times on Monday.
US and European companies seldom buy overseas electricity grids because their networks are laid out in specific physical regions, He explained.
SGCC's M&As in the Philippines and Brazil since 2007 have generated high returns for the company, news portal eeo.com.cn reported in August 2014.
"Through mergers and acquisitions (M&As) overseas, China's companies can get advanced resources [such as] research and development, marketing and services to improve their status in the global value chain and further integrate into the global economy," Liu Jian-ying, an assistant research fellow at the Chinese Academy of International Trade and Economic Cooperation, told the Global Times Monday.
However, Australian regulators have imposed strict conditions on the deal, noted media reports.
The two bidders, together with their advisors and engineers, have to pitch their business plans to authorities in face-to-face meetings later this week, afr.com reported Sunday.
The independent Federal Member of Parliament Bob Katter hopes to stop the sale of Ausgrid to SGCC by saying that "assets such as Ausgrid provide the ability to secure income for future generations," the Guardian reported on Wednesday.
Nick Xenophon, an independent senator of Australia, said the possible sale of Ausgrid to a foreign state-owned company should raise national security concerns, as the NSW electricity network is nationally important, the Guardian said.
According to afr.com, SGCC has stakes in South Australia's ElectraNet, Jemena and ASX-listed AusNet, which it bought in 2013. If the deal with Ausgrid is successful, it will own all of Sydney's electricity and gas infrastructure, which represents 75 percent of the country's total.
"Security issues may be a main obstacle," He said, noting that Australia has strict rules on foreign M&As.
For example, private companies can't buy stakes exceeding 20 percent in Australian hospitals and can't join the board of directors, He explained.
China's outbound M&A deals have surged, but Liu said China accounts for only 6.2 percent of the global total.
A total of 115 Chinese outbound M&A deals were announced in the first quarter of 2016 with a total value of $82.6 billion, double the year-earlier figure, said a report released by PwC in April.
However, China's rapid expansion overseas has drawn the attention of the governments of countries where deals have been proposed or taken place, according to the ftchinese.com report.
Australian Treasurer Scott Morrison barred the sale of Australia's biggest beef producer, S Kidman and Co, to a Chinese company, saying it would hurt the national interest, heraldsun.com.au reported in April.
A $1.2 billion takeover of Opera Software, a U.S. Web browser maker, by a group of Chinese companies led by Qihoo 360 came to a halt because of failure to get approval from US regulatory authorities, Reuters reported on July 18.
Countries including Australia should treat Chinese outbound M&As in a fair and subjective way, as successful M&A deals are conducive to both the companies involved and their countries' economies, Liu noted.
"We can't stop outbound M&As just because some people disapprove," said He.
