China's state-controlled oil company CNOOC has dropped its bid for Unocal in the face of stout U.S. political resistance. Forbes writer Paul Maidment notes that this isn't China's first defeat at high-stakes international mergers & acquisitions, and offers advice.
[I]f to the winners go the spoils, then to the losers come a lot of questions. And China's attempts to expand its global corporate footprint through a series of high-profile, cross-border mergers and acquisitions has seen more losers in recent months than Beijing will have liked.Posted by Alan at August 2, 2005 12:29 PMThe big question they raise goes way beyond politics, even though there is no doubt that China is a sensitive nerve among the American public and politicians alike these days. That question is this: Just how good are Chinese companies at the global M&A game and especially when they run up, as they invariably must, against competing foreign bidders for whom this isn't the first time in the rodeo?
China's companies will learn the rules of the game they are now star[t]ing to play—and western investment banks are lining up to relieve them of hefty fees in return for teaching them. The companies' government—often their their senior shareholder as well—wants them to acquire foreign assets, notably the natural resources and consumer brands and expertise that they cannot grow rapidly at home.
China's national interest is its imperative, and cross-border M&A is the way to fulfill it. China's largest companies—the ones most likely to be doing the big deals—may be mostly state-funded and have managers largely hand-picked in Beijing. But they will have to learn how to win at this most capitalist of games, M&A. The way to do that is not, as CNOOC did, by launching big, high-profile bids in politically sensitive industries, but to do a bunch of smaller deals that can actually get done. Small wins lead to larger victories.