M&A: ILFC Deal Dead, CRE Eyes ParknShop
couple of reports on major global M&A by Chinese buyers are showing why such deals could be difficult for a number of reasons, and why it always helps to get a more experienced multinational partner. In the former category, a stalled deal appears to be on the brink of collapse that would have seen a Chinese group buy insurance giant AIG’s (NYSE: AIG) ILFC unit, the world’s largest aircraft leasing company. In the latter category, a new partnership between Chinese grocery store operator China Resources Enterprise (HKEx: 291) and British giant Tesco (London: TSCO) may be preparing a major bid for the Park N Shop grocery store chain being sold by Hong Kong conglomerate Hutchison Whampoa (HKEx: 13).
This kind of major global M&A is always difficult, even for the most experienced companies, as it often involves complex financing and specialized knowledge of various industries and markets. For Chinese companies making global purchases, political elements also often come into play, especially in the west where governments are often wary of many acquirers’ ties to Beijing. Bringing in a seasoned western partner to help in such M&A could greatly boost the chances of success by easing concerns of financiers and government officials.
I suspect that both financial and political factors were behind the imminent sinking of the ILFC deal, which surprised global markets when it was revealed late last year. That deal saw a group led by New China Trust make a $4.8 billion offer for the aircraft leasing unit, only to later miss several deadlines for closing the deal. (previous post) The reasons for the repeated missed deadlines were unclear, though I suspect the Chinese group was having difficulty getting the necessary financing.
Now media are reporting that New China Trust has left the bidding group, worried that the deal could draw scrutiny from US officials due to its own ties to China’s powerful state planner, the National Development and Reform Commission (NDRC). (English article) The deal’s latest deadline of late August is still a week or so away; but with the exit of the lead investor and no apparent replacement in sight, I suspect we will see this deal officially scrapped in the very near future. Frankly speaking I’m surprised that AIG didn’t already cancel the talks after the Chinese group missed previous deadlines, as the US insurer is no longer under the same pressure to sell assets as it previously was.
While the ILFC deal illustrates the difficulty of Chinese M&A in the west, the latest reports of a potential bid for ParknShop by China Resources Enterprise (CRE) and Tesco could have much more potential for success. CRE and Tesco just formed their own partnership earlier this month, when they pooled their China supermarkets into a single joint venture company controlled by CRE. (previous post)
The latest reports say CRE would raise debt to fund a ParknShop purchase, following previous reports that Hutchison Whampoa wanted to sell the chain as part of its drive to divest non-core, slower growth assets. (English article) The CRE-Tesco partnership would be one of 8 bidders that have shown an interest in ParknShop.
From a purely M&A perspective, CRE could have a good chance of winning the ParknShop auction if it makes a competitive bid. The Tesco connection should give it access to financial resources it needs to complete the deal, and could ease any concerns about CRE’s intentions in Hong Kong and other non-Chinese markets. The buy would also complement both CRE’s and Tesco’s current businesses, and the companies could even use the deal to expand the ParknShop brand in China or other Asian markets. For all of those reasons, I would give a CRE-Tesco bid for ParknShop a strong chance of success if the companies go ahead with the plan.
Bottom line: A Chinese group’s bid to buy aircraft lessor ILFC will soon be formally scrapped, while CRE and Tesco have a good chance of success with their separate bid for ParknShop.
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