Anbang Eyes Korea And Europe, Hits Waldorf Headwind

Anbang in sudden global buying binge

After spending most of its life in relative obscurity, Chinese insurer Anbang is suddenly making steady headlines on the global stage with word of 2 major new deals in Europe and Asia, following its landmark agreement last week to buy New York’s storied Waldorf Astoria hotel for nearly $2 billion. The larger of the latest deals has Anbang in talks to buy a major stake in South Korea’s Woori Bank, while the smaller has it buying Belgian insurer Fidea. Meantime, Anbang’s earlier landmark Waldorf deal is showing early trouble signs, with word that some US diplomats are expressing concerns about the sale over the potential for spying.

I’ve done a little math based on various figures from previous reports, and these 3 deals combined could end up costing Anbang as much as $5 billion — quite a massive figure for a company that has never done major global M&A before. The timing of its sudden global buying spree is probably due to several factors. The most important is probably Anbang’s recent receipt of Beijing’s approval to make such purchases, since most big Chinese investors were forbidden from making such big global acquisitions until recently.

The other big factor is the abundance of deals in the market, mostly the direct or residual result of distress from the 2008 global financial crisis. In both the Fidea and Woori cases, the assets are being sold by non-strategic buyers who were never looking to become long-term owners. The sudden appearance of Anbang’s name connected with 3 such big deals suggests it is quite active in the market, and is also quite likely to overpay for assets that could cause it problems later due to its inexperience.

Let’s start with Woori Bank, which was bailed out in a deal that saw the South Korean government purchase 30 percent of the lender. The government has repeatedly tried to sell its stake, with media reporting as recently as 2012 that it was making a third such attempt. Now it looks like a sale could finally happen, with the newest reports that Anbang is competing with several other Chinese suitors, as well as Kyobo Life to buy the stake. (English article) Based on the reports, the stake would be valued at about $2.6 billion, about the same level as it was in the 2012.

Meantime, other media reports are saying that Anbang has also agreed to buy Belgian insurer from private equity company JC Flowers. (English article) There’s no financial terms in the reports, which say the deal marks the first purchase of a European insurer by a Chinese buyer. JC Flowers purchased Fidea for 244 million euros about 3 years ago from financial group KBC, which was looking to raise cash after the global crisis. I expect Anbang is probably paying a 20-30 percent premium over that price, which would put its cost at about 300 million euros, or about $380 million.

Lastly let’s look at the latest reports that Anbang’s deal to buy the Waldorf, announced with fanfare last week (previous post), is running into some early headwinds due to concerns about the potential for spying, a common theme in recent Sino-US relations. The latest reports say concerns were raised due to the provision for a major renovation as part of the landmark $1.95 billion purchase.

The Waldorf is one of New York’s poshest hotels, and hosts many foreign leaders when they come to attend United Nations events in the city. A spokesman for the US mission to the UN said his agency is currently reviewing the sale and renovation plans, but provided no additional details. (English article) Thus the concern appears to be coming from diplomats and not Washington itself, which would have the power to veto the sale. Still, this trouble could be an early warning sign hinting of problems to come, which could ultimately cause the deal to collapse.

Bottom line: Anbang’s sudden global buying spree is likely to run into problems due to politics and its own lack of experience, leading to overpayment for assets and the collapse of some of its deals.

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