FINANCE: ICBC’s Taiwan Buy On Hold, Bright Food Closes Israel Deal
Bottom line: ICBC is likely to ultimately get approval to buy 20 percent of Taiwan’s SinoPac Financial, while Bright Food’s newly closed purchase of Israel’s Tnuva should boost its bid to become China’s first global food group.
I got a sense of deja vu on reading the latest announcement from ICBC (HKEx: 1398), saying China’s leading lender has extended a deadline to buy 20 percent of Taiwan’s SinoPac Financial (Taipei: 2890), 2 years after the tie-up was first disclosed. That’s because this deal looks strikingly similar to another proposed tie-up between leading Chinese telco China Mobile (HKEx: 941; NYSE: CHL) and one of its Taiwan peers, which ultimately crumbled after repeated extensions. In both cases political sensitivities undermined the deals, though such sensitives could play less of a role in the ICBC-SinoPac deal.
At the same time, I’ll also admit my surprise to read that another sensitive deal has closed that will see Shanghai-based food giant Bright Food Group buy Tnuva, Israel’s largest dairy. That deal was first announced about a year ago, but concerns were quickly raised that Israel might veto it over national security concerns. But the latest reports say the purchase has finally closed, handing Bright a major victory in its quest to become China’s first global food giant.
Let’s begin with the ICBC deal, which was first announced in April 2013 and would have seen China’s largest bank buy 20 percent of SinoPac for about $700 million. (previous post) No one really followed the deal after that, though many did note that Taiwan’s current law didn’t allow for local banks to sell such a large stake to their Chinese peers. Both ICBC and SinoPac assumed that either those laws would change or that they would get an exemption, reflecting increasingly warm ties across the Taiwan Strait.
But now ICBC has just issued a new statement saying that its latest extension of a deadline to close the deal passed on April 1, and the 2 sides have decided to extend the deadline again to October 1. (company announcement) There’s no indication of whether they would extend the deadline again after that if they fail to get an exemption, though it’s helpful to look at the China Mobile case for some potential indicators.
In that instance, China Mobile announced in 2009 it would purchase 12 percent of Far EasTone (Taipei: 4904), the smallest of Taiwan’s 3 major wireless carriers. But Taiwan regulators never approved the deal, and ultimately the 2 sides scrapped the plan in 2013, or some 4 years later. (previous post)
If ICBC follows that lead, it could still be prepared to wait a few years longer before calling it quits on the deal. I personally would give this newer tie-up a better chance of succeeding, since banking is less sensitive than telecoms and cross-Strait relations also continue to improve. What’s more, the Taiwanese banking sector is also far more competitive, with many more players than the 3 for telecoms.
Next let’s look briefly at the Bright-Tnuva deal, which was one of the largest ever for Shanghai-based Bright in a string of recent major global acquisitions. The deal saw Bright propose to buy 77.7 percent of Tnuva in a deal that valued the Israeli dairy at 13.4 billion yuan ($2.2 billion), meaning Bright would have paid about $1.7 billion.
At least one Israeli politician expressed reservations due to national security reasons, and the deadline for the deal was extended at least twice as both sides awaited regulatory approval. Now the latest reports are saying the deal has finally closed, though they don’t specify what obstacles it finally cleared. (English article) I suspect that Israeli government approval was one of the last hurdles, which Bright has presumably now received.
I’m a bit surprised that Israel approved the deal, though the move does parallel approval by Washington of a similarly sensitive cross-border food deal that saw leading US pork producer Smithfield purchased by China’s WH Group (HKEx: 288) in 2013. Politics probably played at least a small part in this latest deal, since Israel probably wants to curry favor with Beijing. But at the end of the day the approval marks a major step forward for Bright as it tries to position itself as China’s first global food group.
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