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China Briefings

Reports on China issued by Samsung Economic Research Institute

Foreign Takeover of Chinese Companies

Foreign Takeover of Chinese Companies

Samsung Economic Research Institute Beijing Office

Oct. 26, 2006

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Foreign merger and acquisition (M&A) of leading Chinese companies has soared since 2001. In 2003, US-based film and camera maker Kodak acquired a 20% share of China's largest filmmaker Lucky Film. The Hong Kong Shanghai Banking Corporation in 2004 bought a 20% share of Bank of Communications, one of China's five biggest commercial banks for US$1.75 billion.

In contrast, Chinese companies have had difficulty acquiring assets abroad. China's leading household appliance maker, Haier Group, unsuccessfully bid for the US' third largest appliance maker Maytag for US$12.28 billion. China's third-largest state-owned oil company, China National Offshore Oil Corp (CNOOC), offered US$18.5 billion for the California-based Unocal, but the bid ultimately died due to fierce opposition from US legislators.

In 2006, foreign investors have made more aggressive bids for leading Chinese companies. For example, US-based private equity fund Carlyle Group attempted to buy China's largest construction machinery manufacturer, Xugong Group, for US$375 million. Germany's Schaeffler Group planned to acquire Luoyang Bearing Corp., one of China's three largest bearing manufacturers. Switzerland-based commodities trader Glencore International AG attempted to buy a stake in China's second-biggest aluminum maker. Facing a series of such aggressive takeover attempts, the Chinese government began to express their complaints over hostile takeover of foreign capital.

This report analyzes hostile takeover from general M&A activities. The former refers to a merger case that is opposed by the company that is being bid for. Therefore, defense measures of the target company determine whether the takeover attempt is hostile or not. If no defense measures are taken by the target company, the merger case is not considered to be a hostile takeover attempt.

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