Confucianism and Taoism in mergers and acquisitions

Foreign-funded private equity funds in China to expand the pace of the expansion of the land, a pile surfaced in the case of mergers and acquisitions eye-catching. But not every takeover case is going to be neat and happy. There are two contrasting cases of Carlyle's takeover of Xugong and Goldman Sachs. The same is the leader of foreign-funded private equity, is also intended to be the absolute holding of China's industry leading enterprises, but the outcome is very different, sad and happy different. 　　Foreign private equity funds in the complex Chinese political and social environment, how to compromises to achieve a successful final victory? 　　The devil is in the details, so let's review the two acquisitions. 　　Carlyle to buy the Xugong case Roadmap 2002 Restructuring-Take Xugong machinery as a platform to start restructuring plan. 2002, Xugong group began to start restructuring plan. In the past 2003 years, J.P. Morgan officially served as a financial advisor to the Xugong group, which was introduced into the operational phase. Since the beginning of 2003, the original Xugong machinery industrial assets have been stripped off, while clearing the internal enterprise cross shareholding assets. The large number of joint ventures of Xugong Group have not entered the xugong machinery, the final package of assets mainly include Xugong group's core heavy duty plant, engineering plant, loader factory and listed company Xugong technology, also including "Xugong" brand intellectual property rights. 　　At the beginning of 2004, after packing, the work of the Xugong machinery was officially launched. 　　2004 Draft-Carlyle shortlisted for Xugong Group. At the beginning of the investment, more than 10 investors were shortlisted, and Caterpillar, the world's machinery-manufacturing giant, was once seen as the most powerful competitor. The Xugong group is no stranger to caterpillar. As early as 1995, the Xugong group cooperated with the establishment of the joint venture-Caterpillar Xuzhou Co., Ltd. In the 2004 years, the Xuzhou side to the finalists of the first round of elimination, announced six major potential investors, Caterpillar impressively in the column. October 2004, the second round of elimination has been seen. 　　Surprisingly, exclusively's financial capital – AIG, JPMorgan Chase Asia Investment Fund and Carlyle Asia Investment Corp.-won, and the previously-determined Caterpillar was officially out. 　　2005 finalised – Strategic investors identified as Carlyle. After the second round of elimination, the remaining three investment funds in a few months to the xugong machinery for more in-depth research, and with the Xuzhou government began a further negotiations. Carlyle has been given priority over the details of negotiations around May 2005. 　　October 25, 2005, Xugong Group signed an agreement with Carlyle Investment Group. 　　2006 stalemate-Public opinion fermentation. At the beginning of 2006, Xugong will report the transaction materials, waiting for the final part of the approval of the Ministry of Commerce. 　　Just at this time, February 12, an article called "Foreign capital to encroach on China's industry No.1 survey: Who enjoy the country retreat into the feast" article will be Xugong takeover case to the forefront of public opinion. March 4, 2006, when Deshui, director of the National Bureau of Statistics,The meeting of the CPPCC said that foreign mergers and acquisitions have endangered the national economic security, the need for regulation, then there are Prime Minister Wen Jiabao, Finance Minister Jin, central bank governor Zhou Xiaochuan. Subsequently, the "foreign mergers and acquisitions threaten China's industrial security" argument in the meeting of the two sessions of rapid fermentation. 　　The proposal also proposed that, for the national economic security considerations, "foreign mergers and acquisitions to have the bottom line." 　　The 2006 mutation-31 groups were killed halfway. 31 Wenbo, CEO of Heavy Industry, has published several articles in his personal blog since June 6, 2006. This paper puts forward the concept of "the dominant right of strategic industry development is the national sovereignty", combining the national strategic industrial Security with the Xugong case, not only the Kere acquisition case is tortured by the national industry protection problem, but also the price of Xugong acquisition by Carlyle is questioned. Wenbo said Xugong is a strategic industry, with a strong brand advantage, leading product market share first, annual income of 17 billion yuan, but to 2 billion yuan, is a serious sale of state-owned assets. 　　After proposing 31 plans to accept the Carlyle scheme in its entirety and to buy Xugong at a price higher than Carlyle's 30%, or $300 million, the group said it would be willing to increase the cost of 100 million dollars to buy xugong by 400 million dollars. With the rapid heating up of the Xugong takeover, Xugong and the 31 had a war of words, which also aroused heated discussion and close attention from all sides of the society, as well as the cautious treatment of the purchase case by the relevant government departments. 　　As a result, several bloggers pushed Xugong's restructuring to the eye of the storm. 　　2006-Year dialogue--senior Chinese and US government positions on Xugong case. The Xugong case gradually escalated to the relationship of "safeguarding China's industrial security" the height of the issue, once by the international community as "China's reform and opening-up process Vane", has become a lot of media in the "History of China's private equity benchmark events." 　　And the Chinese and American government's attention is also increasing. The State Council on June 28, 2006 issued the State Council on speeding up the revitalization of equipment manufacturing industry, a number of views. The rules will list the restricted industry catalogue, and then divide the industry into specific restrictive policies. July 2006 17-19th, for three consecutive days, the Ministry of Commerce convened all the units associated with Kere mergers and acquisitions, and asked for details in batches, the closed-door meeting, in the "hearing" on the seat of the Ministry of Commerce, Industry and Commerce, foreign Exchange Bureau, the General Administration of taxation, the SFC, Sasac six officials, " "Is the Xugong, Xuzhou government, Jiangsu province Foreign Economic and Trade department head of the director." Among them, the Ministry of Commerce dispatched the foreign-funded department, the United States, the Law Division, the Industrial Damage Investigation Bureau officials to participate in the most rigorous lineup. 　　Participants generally believe that a "hearing" of a merger is not uncommon in foreign countries, but at home it seems to be the first. Carlyle, founder Rubenstein flew to Beijing, low-key visits to the relevant ministries and many officials. The same aircraft arrived with former U.S. Secretary of State Colin Powell. On the eve of the "hearing", Powell met with the Commerce Minister, Bo Xilai, with only one theme: CarlyleXugong merger case. In late July 2006, Lavin, Vice Minister of Commerce of the United States, Franklavin a visit to China, urging China to ratify the Carlyle takeover. 　　Earlier, Carlyle also reported that it would hire a global lobby leader for the first time to help it meet regulatory challenges. 　　Compromise at the end of 2006-Carlyle's three concessions on the basis of the original plan. In the end, with the pressure of government, rivals and public opinion, Carlyle has stepped back into today's situation. 　　We have summed up the contents of Carlyle's three agreements (see table) but the Xugong case has long been pending. 　　Goldman Sachs/Ding FAI acquisition of dual-exchange case in early March 2006 issued the target-looking for strategic investors. In 2005, Luohe Municipal Sasac reported to the Leihe government that it would transfer 100% per cent of its dual-exchange holdings to the Leihe government for approval. March 2, 2006, Luohe City Sasac and the Beijing Equity Exchange signed the "Entrustment agreement", will be the double Exchange Group 100% Equity listing transactions, public bidding to find strategic investors, the listing price is 1 billion yuan. 　　At this time, the double Exchange group, holding a listed company S double sinks (that is, dual-exchange development) 35.72% of the equity. 　　March 2006 end of the competition--more than 10 intended investors. The listing of the double sinks group attracts more than 10 interested investors, including Temasek, Goldman Sachs Group, Ding Hui Investment, CCMP Asia Investment Fund, Citigroup Group, Cofco Group and so on, to negotiate with the North Exchange. To March 30 17 o'clock, the Hong Kong Rotex Limited (hereinafter referred to as "the Company"), and the Hong Kong New World Development Company Limited and the Morgan Asia Investment Fund as the actual controllers of the double sinks International (Mauritius) Limited, who are the actual controllers of the Goldman Sachs Group 　　A total of two companies sent to participate in bidding bid registration information. 　　April 2006 won the bid-Goldman Sachs wins and JP Morgan loses. April 26, Luohe City Sasac announced that by the United States Goldman Sachs Group and Ding Hui China Growth Fund Ⅱ authorized and on behalf of the two companies to participate in the bidding of the company won the bid, the bid price of 2.01 billion yuan. And the original champion of the very high JP Morgan, only the price set in the 1.2 billion ~15 billion, only 60% of Goldman Sachs. 　　It is said that winning and rising bids are one of the reasons for Goldman's eventual victory. After that, the company and Leihe signed the "Equity transfer agreement." On May 6, s two shareholder Luohe Haiyu Investment Co., Ltd. (referred to as "Haiyu investment"), also signed the "Equity transfer agreement" with Rotex, which intends to transfer 25% of its dual-remittance development to 560 million yuan to Rotex. Therefore, after these two transfers are completed, Rotex will directly and indirectly hold the s double sinks 60.715% equity. 　　Goldman Sachs has a 51% per cent share in the company, so it will be Rotex by Goldman Sachs. 2006 Years to 2007Approval at the beginning of the year-smooth clearance. The approval of the dual-remittance takeover was very smooth. August 11, 3.5 months after the signing of the agreement, the State Council approved the transfer of shares in the double sinks group, which means the procedural compliance of the equity transaction was confirmed. December 6, 2006 the Ministry of Commerce approved the acquisition. February 9, 2007, after nearly 10 months, s double sinks issued a notice, the CSRC to Rotex announcement of the full text of the acquisition report no objection. 　　With less than 10 months to go before and after winning the bid, Goldman Sachs Group gained a 100% per cent share of the double Exchange group and holding s double sinks without any suspense. However, as the state-owned equity recipient Hong Kong Rotex Co., Ltd. triggered a comprehensive offer obligation due to the takeover, its "Henan Shuang Hui Investment Development Co., Ltd. Takeover report" is still in the China Securities Regulatory Commission audit process, Rotex will announce and fulfill the offer obligation after the CSRC approves the audit without objection. 　　At this point, Rotex through the acquisition of the last of the two sinks. Two lines of contention as we replay the Carlyle takeover and Goldman Sachs/CDH takeover, we found that, in fact, the dual-exchange takeover case and the Xugong takeover case reflect two competing routes. One is Confucianism and Taoism, the core idea of Confucianism is the mean and harmony, not to oppose all kinds of social forces, in the interests of all parties on the basis of greatest trade routes; the other route is the road, emphasizing order and dominant rules. With the deepening of foreign private equity funds in China, the difference between the two routes is embodied in the understanding and handling of official and civil forces. (see photo) In fact, before the Xugong incident, the hands of private-equity transactions were absolutely pointing to official power, and as the ultimate arbiter of the deal, the central government and its ministries usually judged the information of local governments and the management of the target companies. 　　Thus, the presence of official forces is actually merely a legal birth certificate for the transaction, and other forces are increasingly playing an important role, often becoming an important factor in determining the success of the acquisition process. Of course, the meat processing of the double sinks is not as relevant to the national security as the machinery industry of Xugong, but it is related to the monopoly of the industry, and also has great influence on the healthy operation of our economy. It is clear that Goldman Sachs, which employs Confucianism and Taoism in the dual-remittance case, is far more sophisticated than the one used in the Xugong case, so that Goldman Sachs laughs last. 　　There are two details that can best show Goldman Sachs ' clever tactics. First, Goldman Sachs does not seem to meet the terms of the transfer, but it has won the final victory. Goldman Sachs has long owned another meat-processing firm, double sinks the biggest competitor-Yurun more than 13% of the shares, and occupy the Yurun board of 12 seats in the two seats, but also with the Henan North Xu Group joint venture set up Henan Yurun North Xu Meat Food Co., Ltd., a direct threat to the double sinks, So Goldman simply does not meet the double sinks ' bid for a ban on competition. Second, the Rotex, made up of Goldman Sachs and CDH, does not meet the 50 billion of the double sinks.Capital conditions. The media has made a lot of reports on the double sinks, and there is a view that, after holding the rain run, the success of the double sinks, Goldman Sachs will further "dominate" the Chinese meat processing industry. 　　But the double sinks said: "They have a small stake and do not affect acquisitions", and Goldman Sachs has made two commitments prior to the acquisition of double sinks: the future will not increase the Yurun shares and maintain two brand independence. Second, in the knowledge of adverse circumstances, by first persuaded the double sinks management, won the Haiyu investment, realized from behind. 　　Double sinks development of the second largest shareholder Haiyu investment, industrial and commercial registered shareholders are composed of 16 natural persons, 16 of whom 11 are double sinks executives. From June 11, 2003, Haiyu investment to 350 million yuan (after adjustment to 402 million yuan) at the cost of a double remittance development of 25% equity, through the transfer of equity to Goldman Sachs, Haiyu investment harvest is abundant. 　　The transfer of equity let Haiyu 562 million Yuan, in 2003, when the cost of the double sinks was 402 million yuan, Haiyu a total profit of 160 million yuan, plus three years of cash dividends from the double sinks 201 million yuan, Haiyu in the double Exchange equity investment on the total profit of 361 million yuan, investment yield reached 89.8%. In response to the question that Goldman Sachs, which shares the Nanjing Yurun Food, does not meet the requirements for dual-remit bidding, the company, on behalf of Goldman Sachs, publicly responded that Goldman's investment in rain-run food did not constitute a rival to S, because Goldman Sachs and CDH invested in Yurun and did not seek to control the management of Yurun, but wanted to take investment returns from the capital markets. It is understood that as of November 22, 2006, Goldman Sachs on the indirect ownership of yurun food, has been from the initial listing of 6.5% to the current 3.88%, Ding-hui China Fund holding the Yurun food shares also from the initial 5.87% to 1.06%. 　　The double sinks have commented on the matter, "they have a small stake and do not affect acquisitions", adding that Goldman Sachs has made two commitments prior to its takeover of the two sinks: it will not increase its share of yurun and maintain its two brand independence. Goldman Sachs has an insight into the various forces that affect mergers and acquisitions, and it is indeed Chigau to use the means to fight enemies and to woo friends. 　　Disregard for the interests of the management of the target enterprise may be the ultimate cause of JPMorgan's defeat. The forced mechanism of the formation of public opinion ferment has upset the original decision rank and order, the foreign private equity funds are confronted with the reflection, and the merger of the law and the Tao is gradually transition to Confucianism and Taoism. In fact, after the Xugong failure, Carlyle has changed tack and quietly made a bargain deal. March 30, 2007, Yangzhou Cheng de steel pipe Company announced that Carlyle has passed the value of 80 million of billions of dollars of investment to become its 49% stake in strategic shareholders. Yangzhou Prudential Main products are φ219mm above the large-caliber seamless steel tubes, large seamless value-added is very high, currently only four enterprises can produce. Yangzhou Cheng Tak capacity in 200,000 tons, sales revenue in 1.5 billion yuan, is expected to 2006 net profit of about 200 million yuan. As far as we know,Large seamless capacity of the million tons of investment in about 50 million, that is, Yangzhou Cheng Tak's capacity to invest about 1 billion yuan. Carlyle has a 49% per cent stake of $80 million (at the current exchange rate of 610 million yuan), and the premium rate for replacement capacity is only 20%. The deal has a price-to-earnings ratio of less than 7 times times the purchase price-earnings ratio. In addition, according to our understanding, Yangzhou Prudential has launched the overseas listing plan, according to the current international market for special steel market valuation, Yangzhou Prudential issued a P/E ratio should be more than 25 times times. 　　The pace of Carlyle's mergers and acquisitions has not stalled in the Xugong case, or even become increasingly astute, and the road to mergers and acquisitions has been smooth. Private placement is actually like a set of exquisite, complex Western food, while Confucianism and Taoism, harmonious thinking is the Chinese eating chopsticks. Therefore, learn to use chopsticks to eat and buy Western food, in order to master the true meaning of private placement in China.