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Fish called Shanda

14 April 2016 By Rob Cox

Nelson Peltz sat on Legg Mason’s board for five years while his hedge fund, Trian, scooped up a tenth of the $3.7 billion asset-management firm’s stock. The activist investor shook things up like he always does. He ousted the chief executive and got Legg to cut costs and return billions of dollars to shareholders. Naturally, when it came time to exit the investment Peltz sold his shares to Shanda Group.

Wait, what? You heard right. Shanda is a Chinese investment company that started out as an interactive-gaming firm but now “seeks global opportunities that offer business growth or unique breakthrough potential.” On Tuesday it spent some $340 million to buy Peltz’s stake in the firm that got its start selling stocks out of a back office in the Baltimore Stock Exchange in 1899.

The logic of this deal is hard to follow – not least because Shanda paid a premium to the market price for the Legg shares, something that almost nobody ever does for a passive minority stake. Yet such situations are hardly unique at a moment when Chinese companies and investors are going wild for assets of pretty much any color or stripe in the world’s developed economies.

Indeed, the Chinese ardor for overseas shopping has become so fervent that there’s a new mantra making the rounds of Wall Street bankers who have an asset to sell anywhere in the world: “Who’s the Chinese buyer we’ve never heard of?” The biggest advisory firms like Morgan Stanley and Goldman Sachs now routinely fly China specialists across the ocean when they pitch companies for the mandate to help sell a business.

The surge in Chinese buyers, many of them unknown in the West – sometimes even in Hong Kong – requires a new level of due diligence, and heightened vigilance, from banks, lawyers and accountants. As the curious case of Anbang Insurance’s aborted – and inexplicable from the start – $14 billion bid for Starwood Hotels suggests, it’s harder for investment banks to really get to understand their Chinese clients’ motivations.

The examples cross nearly every industry and region. Though head-scratchers abound, not all of them are as hard to fathom as Shanda’s Legg investment. Some reflect the overarching ambitions of Chinese Communist Party leaders. Some, like Alibaba’s purchase of Hong Kong’s South China Morning Post, look like vanity plays. Others just take a creative stretch of industrial logic to justify. Underpinning them all seems to be a lack of confidence about prospects in the People’s Republic.

ChemChina’s 44 billion Swiss franc ($43 billion) takeover of agro-chemicals giant Syngenta falls squarely into the first category. The state-owned enterprise was set up by the country’s former Ministry of Chemical Industry. Chairman Ren Jianxin undoubtedly has a red phone linking his desk to the Communist Party’s top brass in Beijing.

The Syngenta deal looks designed to satisfy China’s goals to boost food production in the world’s largest agricultural market. Syngenta’s chemicals and patent-protected seeds are a strategic asset for a nation that has 1.4 billion rice bowls to fill. China’s biggest-ever foreign acquisition is a relatively logical pairing.

The same cannot be said of Shandong Ruyi’s surprise 1.3 billion euro ($1.2 billion) purchase last month of SMCP, the operator of second-tier European fashion chains Sandro, Maje and Claudie Pierlot. It’s hard to argue, as Shandong Ruyi does on its website, that “being involved in rabbit-hair spinning, textile & clothing, cotton textile, cotton printing and dyeing, knitting, fiber, jeans and real estate” has made it a “well-known textile-related pluralism group.” Still, kudos to the enterprising banker who alerted the firm to KKR’s willingness to part with the French retailer.

At least Shandong Ruyi has a website – as well as headquarters in the city where Confucius was born. In the auction of Dah Sing Financial’s insurance business more than two dozen suitors showed up for the first round of bids, half of them from the mainland, and some so obscure that bankers involved in the process had never heard of them.

That’s not unusual. When private equity firm EQT was selling a German company that generates energy from waste matter, eight interested parties from the mainland showed up. And unlike banks or insurers sniffing around Dah Sing, they weren’t highly regulated entities. In the end, the business sold for 1.43 billion euros to Beijing Enterprises Holding, the Hong Kong listed conglomerate with three business lines: gas, beer and sewage treatment.

China’s lunge for foreign assets has hit $92 billion so far this year, according to Thomson Reuters, nearly reaching last year’s $103 billion record with eight and a half months to spare. At that pace, it won’t be long before Mandarin solidly displaces money as the language of opportunity on Wall Street.


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