In China M&A, hostile forces loom large

China followers know that stability is highly rated. Hostile takeovers, like divorces, are never smooth and the few that have made headlines recently sent shock waves through markets in Hong Kong, Shenzhen and Shanghai.
Beijing sent a shush message last month regarding Baoneng Group’s attempt to take control of China Vanke Co., a developer that was until last year the nation’s largest homebuilder by assets. The China Insurance Regulatory Commission in December suspended universal life insurance sales of Foresea Life Insurance Co., the Baoneng subsidiary that was amassing shares in Vanke. It also dispatched inspectors to Evergrande Life, the insurance arm of property firm China Evergrande Group, which by that time had emerged as the third-biggest shareholder in its rival.
The tussle seemed to resolve itself on Thursday, when China Resources Co., which used to be the controlling shareholder in Vanke before Baoneng entered the frame, said it would sell its 15.3 percent interest to Shenzhen Metro Group Co.
The railway operator emerged as a white knight of sorts back in 2016 as Vanke tried to issue additional shares to buy assets from Shenzhen Metro in a deal that would have simultaneously diluted Baoneng and created a new major shareholder that was more aligned with the company’s board. That transaction never happened, however, and China Resources’ announcement appears to turn the page on the whole chapter.
It looks as if Baoneng retains control of Vanke, though, with a 24.3 percent stake. That’s more than Evergrande, at about 14 percent, and Shenzhen Metro after the China Resources deal. The only reason why minority shareholders can expect some peace and quiet in board meetings now is because both unwanted intruders have gotten the message after Beijing’s rap over the knuckles. (Although if they wanted, they could probably work together and restart the melee.)
While that may give pause to companies considering a hostile takeover in China, it’s hardly going to stop the trend. The fact authorities got involved in a situation that was rocking the boat of one of the biggest and arguably best-run companies in an industry responsible for almost a fifth of the economy doesn’t mean they will every time. At this very moment, Yingde Gases Group Co. is experiencing some turbulence after a strategic investor took a dislike to management, for example.
Stability will continue to be a key tenet of M&A in China, where the long arm of the state finds various ways to smooth the waters in the face of unrest. Beijing will always keep one ear to the ground but only react when the rumble gets too loud for its liking.
—Bloomberg

Christopher Langner is a markets columnist for Bloomberg Gadfly. He previously covered corporate
finance for Bloomberg News, and has written for Reuters/IFR, Forbes, the Wall Street Journal and
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