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China-international mergers boom amid world economic downturn

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JINHUA, Zhejiang, Feb.17 (Xinhua) -- Despite twists and turns, Pang Qingnian still hopes to take over Swedish carmaker Saab to expand the overseas market for the China Youngman Automobile and join many other Chinese companies to seek international mergers and acquisitions (M&A).

"We submitted a bid late last month. A Swedish delegation made up of government officials and Saab representatives also visited our headquarters last month," said Pang, board chairman of Youngman, which is based in Jinhua in east China's Zhejiang Province.

"The delegates were satisfied with Youngman's operation. But it is still hard to say now whether our takeover can succeed," he said.

This is Youngman's second attempt to bid on the bankrupt Saab, which suffered heavy losses during the 2008 financial crisis and continued to perform poorly after being purchased by Dutch automobile manufacturer Swedish Automobile NV, formerly Spyker Cars NV, at the beginning of 2010.

Before Saab went bankrupt, Youngman and the Pang Da Automobile Trade Company signed a memorandum of understanding with Swedish Automobile NV to purchase 100 percent of the shares in Saab for 100 million euros (130.17 million U.S. dollars).

Youngman spent 46 million euros, including 30 million on purchasing the technology for Saab's "Phoenix" platform for developments of 9-1 to 9-7 models, and the rest as advance payment for auto purchase.

However, the deal was wrecked when the US-based General Motors, former owner of Saab, refused to allow the technology it licensed to Saab to be bought by Youngman. Saab then went bankrupt after rescue efforts by Swedish Automobile failed.

Youngman has clung to the purchase of the rest of Saab's unsold assets, as Pang sees Saab as a premium European brand with strong appeal to the Chinese customer.

The core technology of Saab, rendered inaccessible by General Motors, was not Youngman's be-all-and-end-all, according to Huang Zhiqiang, vice president of Youngman.

"The company intends to restore Saab's brand and production by purchasing the rest of the unsold assets," Huang said.


Meanwhile, among those Chinese buyers emerging on the global market, the recent M&A case of Sany has sparked much discussion.

Sany Heavy Industry, the country's largest construction equipment group, in late January sealed a deal to acquire German concrete pump maker Putzmeister Holding GmbH, in what is claimed to be the largest Chinese-German transaction yet.

Sany will buy 100 percent of Putzemeister for 360 million euros, together with private equity company CITIC PE Advisors Ltd. by the end of the first quarter.

Xiang Wenbo, president of Sany, said the purchase will help upgrade Sany into a world-famous brand and usher in a globalized era with Putzemeister to become its global non-Chinese headquarter for concrete equipment.

"Acquiring our strongest rival will save us five years or a decade in the process of globalization," Xiang said. "The bid could herald a new era for us stepping on to the world stage and reduce exposure to the domestic economy."

Sany overtook Putzmeister as the world's largest concrete pumps manufacture by sales in 2009 when Putzemeister experienced a drastic revenue slump of 50 percent year-on-year, leading to hundreds of job cuts.

The case, though still subject to approval by regulatory authorities, is hailed as of comparable significance to the Geely-Volvo M&A of two years ago.

In 2010, Zhejiang Geely Holding Group Co. threw Volvo a lifeline, in the biggest overseas acquisition by a Chinese carmaker, and Volvo, after four years of losses, has realized net income of 196 million U.S. dollars in the first half of 2011.


Analysts have attributed their successes to the global economic slow-down providing opportunities for fast-growing Chinese companies seeking to "go global."

"Since the outbreak of the financial crisis in 2008, Chinese enterprises have quickened their pace toward the world market. Through acquisition, they can acquire brands, advanced technology and globalized talents," said Zhang Shuming, chief of Zhejiang provincial office of foreign investment and economical cooperation.

In 2011, Chinese enterprises have landed a historic 207 overseas M&A deals, up 10 percent year-on-year, and the total volume of trade reached 42.9 billion U.S dollars, an increase of 12 percent compared with the year before.

Experts say many overseas companies are undervalued amid the global economic downturn, which has brought opportunity for Chinese enterprises bidding to move up in the industry food chain.

"A large number of enterprises have suffered slumps in sales amid the eurozone debt crisis, defaulted on payments and salaries, and many have even been close to bankruptcy. They may be good targets for Chinese companies seeking technology upgrading and market expansion," said Wan Ge, an analyst from China Venture Investment Consulting Ltd.

Although heavyweight State-owned enterprises are playing a major part in the upsurge of the country's overseas M&A deals, more and more private enterprises have stepped into the foreign field, with the help of private equity.

Private enterprises generally concern themselves more with integrating with the companies they take over, and are more flexible and efficient when negotiating the deal, said Wan.

"Most of them aim at upgrading the industry chain and adding value to their current products, thus better controlling risks for the M&A," added Huang Xianhai, a professor at Zhejiang University.

For example, the Zhejiang-based rayon producer Fulida Group Holding Co. Ltd. produced purchased Canada's Neucel Specialty Cellulose Ltd. for 250 million U.S. dollars at the beginning of 2011, in order to access stable raw material channels.

Meanwhile, green technology provider Zhejiang Dunan Artificial Environmental Equipment Co. Ltd bought all the fixed assets, patent technologies and the research and development team of the US-based Microstaq Inc.

Experts say private enterprises are eyeing a wider range of industries, such as hotels and media, in addition to the traditional manufacturing and mining industry.

"This shows Chinese entrepreneurs are more open and pioneering nowadays," said Huang. But he also warned company owners of increasing risks if they attempt to take over entities that are not immediately related to their major businesses.

"And it remains a problem for Chinese enterprises to better understand international business rules, as well as to improve the operation capacity," Huang added.

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