To turn the clock back to the time when the deal was struck means revisiting a low-point in relations between the Chinese and American business worlds. The Chinese stood accused of IP theft and sharp currency management practices, as a result of which Chinese imports into the States were being threatened with a 27.5 percent levy. Aside from Lenovo/IBM, two other potential acquisitions of US companies by Chinese buyers were also in the pipeline: CNOOC/Unocal and Haier/Maytag. With the vibes emanating from Capitol Hill turning increasingly hostile, oil giant CNOOC and white goods maker Haier quit their respective auctions.
While those of a protectionist persuasion celebrated, free market proponents pointed to a missed opportunity. The arguments in favour of Chinese corporate/US buyout group tie-ups appeared fairly compelling, after all. From the point of view of low-cost Chinese manufacturers facing tough competition in their home markets, it made sense to consider international expansion. And who better to guide them into new markets than savvy, cash-rich LBO groups with their long experience of growing companies around the world? It was potentially a match made in heaven.
In the event, only one such arrangement made it to the altar – and that was Lenovo. Weijian Shan, co-managing partner of Newbridge, hailed Lenovo's acquisition of the IBM unit in a press release in the following way: “Through this acquisition, Lenovo is leading an important trend of Chinese companies moving onto the global stage.”
Shan was right to a degree. There's no doubt that a trend of Chinese outbound M&A activity did exist, and has continued to gather pace. A study by PwC showed such activity increasing 61 percent to $14.1 billion in the first 11 months of 2006. The report did point out, though, that the trend was driven largely by energy and resources deals. It also noted that Chinese outbound investment is “tempered by increasing realisation of the risks that Chinese companies take on” in the process.
Perhaps consideration of the possibilities represented by USSino cross-border co-operation might be reinvigorated by Lenovo's success. At the very least, the involvement of the US private equity consortium draws attention to the fact that the ‘unknown foreigner’ is not the only party that stands to benefit from deals like this. It's informative in this respect to note that CNOOC had secured backing from a number of private equity groups including AIG following a failed IPO in 1999, while Haier's bid for Maytag was backed by Bain Capital and Blackstone Group.
Blackstone Group. In the July/August 2005 issue of
CORRECTION
In the November 2007 issue of