Asking for the earth
M&A targets have more bargaining power than ever with Chinese buyers shopping overseas. Chinese appliance maker Midea’s $5 billion bid to buy German robotics leader Kuka already included a juicy premium. Now it has agreed to protect German jobs and factories well into the next decade.
The legally binding agreement to keep Kuka’s headquarters, factories and jobs in Germany for the next seven and a half years far outstrips local standards for such agreements, which typically last for just two to three years. It comes on top of a 36 percent premium to Kuka’s closing share price the day before the offer on May 18. The sweeteners are enough to have convinced the target’s board to recommend the deal.
Midea may well have wanted to keep jobs and management in Germany anyway, as other Chinese suitors have done with overseas acquisitions. Kuka’s future success, after all, depends on reassuring both suppliers and customers that sensitive industrial technology will not be pilfered to make cheap knock-offs in China. Midea has even agreed not to access databases containing such information or move customer data to China. Yet that limits the Chinese group’s ability to adjust to business conditions as they evolve.
Western buyers are more likely to object to such onerous conditions. Yet Chinese bidders may well have to jump over more hurdles like these amid a rising tide of protectionism stirred up by politicians across Europe. China’s M&A credibility has further suffered recently following the failure of a number of high profile deals led by other acquirers from the People’s Republic including insurance giant Anbang and machinery maker Zoomlion.
The message from Kuka is clear: Chinese buyers are willing to offer much more than big fat premiums to get strategically important deals over the line.