Chinese buyers keen to continue 2016’s rapid dealmaking under a Donald Trump presidency are being given one piece of advice: Wait and see.
Bankers and lawyers are already counseling some Chinese clients to hit the pause button until Trump clarifies his stance on cross-border deals for U.S. targets, according to three advisers to Chinese clients, who asked not to be identified because the discussions are private.
Acquisitive Chinese companies have led a blockbuster year of dealmaking in 2016, accounting for about USD225 billion of overseas purchases this year, according to data compiled by Bloomberg. That’s more than triple the level of the same period a year earlier – and the biggest chunk of the money has been spent in the U.S. If Trump follows through on his campaign rhetoric, however, their enthusiasm could be short-
lived.
“There’s at least a short-term pause,” said Annabella Fu van Bijnen, a partner at law firm Linklaters LLP in Hong Kong. “Given the way Trump has run his campaign there’s not a lot of policy clarity. Investors might be a bit more cautious given the protectionist sentiments that were expressed.”
One of the hallmarks of Trump’s presidential campaign was an insistence that China has taken advantage of the U.S. on trade deals. The president-elect has pledged to label Beijing a currency manipulator. He’s also vowed to lower corporate taxes in an effort to tempt companies to stay in, or return to, the U.S.
Some of the biggest effects could be seen in the technology and entertainment industries, where Chinese buyers have been particularly active. Just this month, billionaire Wang Jianlin’s Dalian Wanda Group Co. agreed to pay $1 billion to acquire Dick Clark Productions Inc., the television studio behind the Golden Globe awards and Miss America beauty pageant. The deal followed Wanda’s $3.5 billion purchase earlier this year of Legendary Entertainment LLC, the Hollywood production house that worked on the “Dark Knight” Batman trilogy.
Trump’s administration could also bring changes to the way that U.S. regulators treat deals. The Committee on Foreign Investment in the U.S., the body tasked with reviewing acquisitions of companies that could have implications for national security, is chaired by the Treasury Secretary.
Until that position is filled it’s unclear how CFIUS will judge Chinese interest in U.S. targets. Advisers are pushing temporary caution.
“People are still in the process of working out what it means,” said Joseph Chow, who formerly led Moelis & Co.’s China business and now runs CJC Partners, a financial advisory firm in Beijing. “He has some tough rhetoric but he’s a businessman.”
China’s interest in U.S. companies spiked earlier this year as the world’s second-largest economy by nominal gross domestic product searched for growth outside its borders.
Through June, buyers from the country accounted for about 24 percent of total deal volumes, Gregg Lemkau, Goldman Sachs Group Inc.’s global co-head of mergers and acquisitions, said at the time. That’s an increase from the usual annual output of about 10 percent, he said.
The largest announced Chinese deal of the year is the acquisition by China National Chemical Co., known as ChemChina, of Switzerland’s Syngenta AG in February for about $43 billion. The deal, which was approved by CFIUS in August but is still going through European regulators, is the biggest-ever foreign acquisition by a Chinese firm.
Despite the increase in activity, dealmaking under the Obama administration hasn’t always been easy.
Chinese deal flow for U.S. technology companies has already slowed in recent months after several acquisitions failed to make it through regulatory processes. Tsinghua Unisplendour Corp.’s $3.8 billion investment for 15 percent of Western Digital Corp. fell apart in February after the deal came under a U.S. national security review from CFIUS.
In January, Dutch company Royal Philips NV said it was canceling the sale of its lighting-components business to a Chinese-led consortium due to CFIUS concerns. Fairchild Semiconductor International Inc. also passed up a higher offer from a Chinese group on the grounds it might not get a U.S. security nod, opting instead for a bid from domestic suitor ON Semiconductor Corp.
Despite the slowdown, other sectors continue to generate interest. China Oceanwide Holdings Group Co. agreed to acquire Richmond, Virginia-based insurer Genworth Financial Inc. last month for $2.7 billion. Still, investors have already shown skepticism that regulators will allow the deal, pushing Genworth’s shares more than 20 percent below its acquisition offer price.
“CFIUS has always been a political body,” said David Tang, Managing Partner for Asia at law firm K&L Gates in Hong Kong. “It consists of elected officials or officials appointed by elected officials, so it absolutely captures the policy framework of the elected administration. It will expand or become narrower as a reflection of the politics.”
Not all deal advisers are certain there will be a slowdown, particularly in industries that the Chinese government has earmarked for investment. Semiconductor deals, for example, have been booming, in part due to a national Chinese mandate to invest more than $100 billion to become a leading player in the chip industry.
“To date at least, I haven’t seen any hesitation or change in posture by Chinese buyers and investors,” said Chuck Comey, a partner in Morrison & Foerster LLP’s Palo Alto, California office who regularly advises Chinese acquirers on U.S. targets. “In fact, just within this week, we’ve started several new technology M&A and financing projects on behalf of Chinese buyers and investors.” Alex Sherman & Jonathan Browning
Manufacturing firm acquires Voltage Pictures for USD350 million
The flow of Chinese capital into Hollywood continues.
China’s Anhui Xinke New Materials has acquired an 80 percent stake in Midnight Investments, owner of film financing and production company Voltage Pictures, for USD350.71 million (2.39 billion yuan).
The Chinese company is best known for copper processing and manufacturing electric wires and cables, but it is now branching out into the film business, Reuters reported yesterday.
Founded by producer Nicolas Chartier in 2005, Voltage Pictures began as a foreign sales outfit before venturing into production with Kathryn Bigelow’s The Hurt Locker in 2010. The company has since produced over 150 films – mostly mid-budget projects in the $15 million to $40 million range – including Dallas Buyers Club (2013) and the forthcoming horror flick Keep Watching, starring Bella Thorne. The company also has produced some television, such as True Justice, starring Steven Seagal, and Leverage, with Timothy Hutton.
Voltage and Xinke didn’t immediately respond to a request for comment.
The buyout is just the latest episode in a busy year of China-Hollywood dealmaking. Other high profile acquisitions include Dalian Wanda Group’s purchase of Legendary Entertainment and Dick Clark Productions, for $3.5 billion and $1 billion, respectively. Los Angeles-based Tang Media Partners, which is backed by Chinese investment, also snapped up IM Global over the summer.
Earlier in November, Anhui Xinke New Materials launched Wotaiji International Media, a subsidiary structured to acquire media and entertainment assets. The firm says the acquisition of Voltage will strengthen its position in the Chinese and international film business, while boosting profitability.
The parent company is listed on the Shanghai stock exchange; its market capitalization yesterday was $1.15 billion (RMB7.79 billion).
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