Carlyle Gives Up Xugong Plan
China’s Xugong Group Construction Machinery Co (Xugong) has given up the plan of selling a stake to US private equity firm Carlyle, after a long wait of three years.
“The investment agreement signed in October 2005 has now expired,” said in a statement jointly issued by the two companies yesterday. “Both parties have decided not to continue the investment and Xugong will embark independently on its restricting.”
It also said: “Considering the significant improvements in the market environment in the transition period, both sides agreed that it is best for Xugong to immediately proceed with its restructuring into a more integrated, streamlined company to be competent in the world market.”
In October 2005, Carlyle decided to buy 85 percent of Xugong at a price of $375 million. It would have been the biggest acquisition of a controlling stake of a leading state-owned company by a foreign investor.
It took the central government a long time to think over the takeover bid which caused a wide concern that China was selling its strategic companies very cheap to foreign investors.
In the past three years, Carlyle has conceded from purchasing 85 percent of Xugong’s stake to 45 percent.
“Carlyle’s quitting will to some extent impact foreign companies’ investment in China’s machinery industry,” said Sun Xin, an analyst with Southwest Securities in Beijing yesterday.”They will be more cautious over mergers and acquisitions in the country, especially with major domestic companies. But its impact on the development of the industry as a whole is not that big. ”
In August 2006, new rules on acquisition of Chinese enterprises by foreign investors were released by the Ministry of Commerce and other authorities. It regulated that overseas investors would need the permission of the central government to buy controlling stakes in key industries.
Xugong is now possessed by Xuzhou Construction Machinery Group, which is owned by the Xuzhou local government. The company is leading in China’s machinery sector.
Some experts had analyzed that China may loose the technology competition to its foreign companies if important firms like Xugong are sold to overseas companies. They also held the opinion that the selling off of a major firm like Xugong to a foreign company may be a hurt to China’s economic security.
In 2006, Chinese heavy machinery manufacturer Sany released its plan to pay a higher price to buy Xugong. Sany Corp Executive President Xiang Wenbo said the bid offered by Carlyle to Xugong was below par. Sany has held the idea of purchasing Xugong for a long time.
Carlyle yesterday said that” continues to make large investments in China, where it has invested in more than 30 companies and has put in more than $1.3 billion in equity alone in the past two years.”
“Both parties believe Xugong’s expansion will create opportunities for partnership with Carlyle and its portfolio companies worldwide,” said the statement.
Are you interested in the business opportunities in China?
China is one of the world’s great growth markets and is likely to be for many years to come. Foreign companies often face difficulties in assessing Chinese market demand and enacting effective strategies because of the language barriers, culture differences, and high expense.
BPOVIA is the leading virtual assistant and Knowledge process outsourcing (KPO) service provider in China. BPOVIA is the only virtual assistant company ever been nominated for the prestigious “Red Herring 100 Asia” Awards 2008. Combines international perspective with local know-how, BPOVIA can provide our clients China business development service and help our clients doing successful business in China.
Please visit http://www.BPOVIA.com/ for details about our service.
Popularity: 2% [?]