Bottom line: Yum’s China unit is getting a relatively low value due to the country’s unique risks and slowing economy, while YTO’s backdoor listing is likely to get a cool reception due to intense competition in China’s parcel delivery sector.
Yum seeks investors for China unit
Two major IPOs are in the headlines today, one from the more mature fast-food business and the other from the fast-growing but extremely competitive package delivery sector. The first deal has Yum Brands (NYSE: YUM) in talks to sell up to 20 percent of its China division to private equity investors, as it tries to value the unit in the run-up to a highly anticipated IPO. The second has Alibaba-backed (NYSE: BABA) parcel delivery service YTO Express launching a backdoor listing in Shanghai, as it looks for cash to support its operations that are probably losing big money.
Chinese IPOs have gotten off to a slow start this year, both in China and overseas, for a number of reasons. Beijing has banned new domestic offerings for now, in a bid to stabilize markets after a massive sell-off at the beginning of the year. New US listings have also been slow, as many start-ups that previously would have chosen New York now consider listing at home instead. Hong Kong has been the only area with significant new activity, though even there the volatility in China have also depressed the market. Read Full Post…
Bottom line: Midea could buy another global brand following its purchase of Toshiba’s home appliance business, while hometown rival Gree will also feel pressure to make a small to mid-sized overseas acquisition in the next 1-2 years.
Midea in MOU for Toshiba’s appliance unit
Following several days of rumors, struggling Japanese tech giant Toshiba (Tokyo: 6502) has confirmed it will sell a controlling stake in its home appliance business to Midea (Shenzhen: 000333), extending a fledgling movement by Chinese buyers abroad. The move could pressure other Chinese rivals, most notably Gree (Shenzhen: 000651), to follow in the footsteps of Midea and Haier (HKEx: 1169), which is also in the process of buying General Electric’s (NYSE: GE) appliance business.
From a bigger perspective, this particular trend looks a bit like what happened several decades ago in the older industry for TV sets. That trend saw Asian buyers purchase big western brands in the fading TV industry, with storied names like Zenith and RCA ultimately get gobbled up. Fast forward to the present, when most of those older brands no longer exist or are insignificant, which could hint at what may lie ahead for these new purchases by the Chinese companies. Read Full Post…
Bottom line: Midea’s reported bid for Toshiba’s home appliance business reflects a renewed global push by Chinese white goods maker, but is likely to fail due to Midea’s lack of experience managing a global brand.
Midea eyeing Toshiba’s white goods?
Leading appliance maker Haier (HKEx: 1169) could quickly discover it’s not the only Chinese company roaming the globe for acquisitions, with word that domestic rival Midea (Shenzhen: 000333) is in talks to buy the white goods business of Japan’s Toshiba (Tokyo: Tokyo). This particular news comes as Haier finalizes its purchase of the home appliance unit of General Electric (NYSE: GE), and is part of a larger push by big western companies to sell their lower-margin white goods businesses.
A subset of that bigger story has seen Japanese brands engage in their own campaign to sell off assets from their lower margin businesses, many of which are losing money. That trend has culminated in prolonged talks that are likely to see the struggling Sharp Corp (Tokyo: 6753) sell itself to Taiwan’s Hon Hai (Taipei: 2317), in what would mark the largest-ever sale of a Japanese electronics company to a foreign buyer. Read Full Post…
Bottom line: Ele.me is unlikely to face long-term fall-out from an attack on CCTV’s annual Consumer Rights Day show, but will still be challenged by a business model that forces it to work with thousands of small, often problematic restaurants.
Ele.me attacked on CCTV Consumer Rights Day show
Online take-out dining pioneer Ele.me is taking a double-hit this week, led by an attack on the company for working with improper licensed restaurant partners during a high-profile TV show broadcast each year on Consumer Rights Day. At the same time, the company is reportedly suffering as droves of those same restaurant partners shun its B2B service due to high fees and slow delivery times.
Both of these stories reflect just how rapidly Ele.me has risen over the last year, and also the usual cut-throat competition that has sprung up in China’s online-to-offline (O2O) take-out dining sector. Ele.me was the earliest major arrival to that space, where online companies offer take-out delivery service for diners from a wide range of local and chain restaurants. Read Full Post…
Bottom line: Alibaba will come close to meeting the top end of its target of raising $3-$4 billion with a new bank loan, and chances are as much as 50-50 that it will use the funds to make bids for Groupon or the stake of itself held by Yahoo.
Alibaba turns to banks for new mega-loan
After first splashing into the headlines with rumors 2 weeks ago, e-commerce giant Alibaba (NYSE: BABA) has finally announced its latest cash-raising exercise in the form of a syndicated loan worth at least $3 billion. Following that official confirmation, all eyes will now be looking to see if Alibaba can find more demand to boost the loan amount even higher, and for any indication of what exactly it has planned for the new funds.
Let’s begin by looking at the latest reports, which have Alibaba announcing the loan in a regulatory filing. It’s somewhat noteworthy that the high-profile Alibaba hasn’t issued a formal press release about the loan, perhaps because it’s waiting to see where the final amount will top out. But perhaps Alibaba has also finally realized it’s better not to raise expectations too high with a hype-filled announcement, which can ultimately backfire if interest from smaller banks in joining the new lending syndicate is poor. Read Full Post…
Bottom line: China’s anti-trust regulators need to wake up to the growing clout of big nmes like Tencent and Ctrip in emerging industries and move more aggressively to stop them from engaging in anti-competitive behavior.
iKang accuses rival of monopoly behavior
A war of words broke out last week between two of China’s largest private clinic operators, as one accused the other of violating the nation’s anti-monopoly laws with a recent purchase. The case pitting iKang (Nasdaq: KANG) against larger rival Health 100 (Shenzhen: 002044) casts a spotlight on growing concerns about anti-competitive behavior in China’s vibrant private sector, which boasts many companies whose size is already approaching some of the nation’s largest state-run giants.
And yet despite the size of these companies and increasing cases of anti-competitive behavior, China’s anti-monopoly regulators have largely ignored the domestic private sector, focusing instead on big foreign and state-run firms. The validity of iKang’s accusations against Health 100 still need to be proven, since China’s private clinic sector is still very young and may not have the scale to qualify for monopoly consideration. Read Full Post…
Bottom line: Hertz’s sale of its Car Inc stake reflects the Chinese company’s new focus on hired car services, and could see Car Inc fall into the red as its UCar affiliate vies with Uber and Didi Kuaidi in the fiercely competitive market.
Hertz dumps Car Inc
A complex transaction involving Car Inc (HKEx: 699) is making the headlines as the new week begins, reflecting a transformation from its roots as a rental car specialist into a hired car services company competing with Uber and Didi Kuaidi. The deal will see former strategic stakeholder Hertz (NYSE: HTZ) sell most of its stake in the company to UCar, Car Inc’s hired car services affiliate. At the same time, Car Inc’s chairman and one of its largest shareholders will also sell his stake in the company to UCar, which will become one of Car Inc’s biggest shareholders.
There’s no explanation for the shuffle in the announcement, but it does seem to show that Car Inc’s Chairman Charles Lu wants to move his company more quickly into the hired car services sector, which is growing faster but is also fiercely competitive. That would explain Hertz’s decision to sell its stake, since Hertz is a global rental car company that probably has little interest in China’s ultra competitive hired car services market. Read Full Post…
Bottom line: A new rival bid for Dangdang and the long closing period for Jiayuan’s privatization reflect growing shareholder resistance to low prices being offered for Chinese companies trying to de-list from New York.
Dangdang gets rival buyout bid
A couple of new headlines reflect the growing chorus of complaints about low bid prices being made for Chinese companies privatizing from New York, led by a surprise new rival offer for former e-commerce leader Dangdang (NYSE: DANG). In the other headline, online dating site Jiayuan (Nasdaq: DATE) is finally moving closer to the New York exit door, after a year-long process that saw the company’s original buyout offer meet with stiff resistance from shareholders unhappy about the price.
The volume of protest noise against some of the most recent offers has certainly been growing, as company shareholders try to get more money for their stock in the wave of buyout offers. The most recent twist saw shareholders cry foul over a management-led buyout bid for online cosmetics seller Jumei (NYSE: JMEI) last month. (previous post) A slightly different but related development saw the founder of medical clinic operator iKang (Nasdaq: KANG) cry foul after his own bid for his company got trumped by a higher offer from an independent bidder. (previous post) Read Full Post…
Bottom line: Wanda Group founder Wang Jianlin and other major Chinese entrepreneurs intent on building wide-ranging conglomerates should look to the western failure of such firms instead focus on their core business areas.
Wanda’s Wang buys Carmike Cinemas
Billionaire deal maker Wang Jianlin was back in the acquisition headlines last week, when his increasingly diverse Wanda empire announced it would buy US-based Carmike Cinemas (Nasdaq: CKEC) as part of it its dream of building the world’s biggest theater chain operator. But theaters are just one of a growing number of items on Wanda’s recent list of mega-projects, which has also included plans for a multibillion-dollar European theme park, a major e-commerce venture, and investments related to sports and its core real estate products and services.
The sudden diversification looks similar to ones by other cash-rich Chinese companies, most notably e-commerce giant Alibaba(NYSE: BABA), and reflects a desire to move beyond their original businesses into new growth areas. While such a strategy seems logical, western experience has shown that such rapid diversification more often results in dysfunction rather than synergies, and frequently ends with the eventual break-up of such companies into smaller units focused on individual areas of expertise. Read Full Post…
Bottom line: Alibaba’s latest $4 billion fund-raising could signal a potential deal to buy its shares currently held by Yahoo, as both companies look to remove a distracting issue that is affecting both of their stock prices.
Alibaba eyeing Yahoo stake?
Chinese e-commerce giant Alibaba (NYSE: BABA) just can’t seem to get enough money. Despite having more than $18 billion in its coffers at the end of last year and access to billions more in credit, the company is reportedly back in talks with a group of banks to raise another $4 billion. That raises the question of why exactly it needs all this money.
Alibaba has certainly been an aggressive acquirer over the last 2 years, spending billions on a wide range of companies in industries from entertainment, to hired car and social networking services and many others. Two weeks ago the company was in yet another major M&A headline, when it disclosed it had quietly purchased more than 5 percent of faded group buying giant Groupon (Nasdaq: GRPN) in the open market. (previous post) Read Full Post…
Bottom line: Cautionary comments from Caixin and Ele.me about investments from Alibaba and its affiliates reflect a growing wariness from companies at accepting money and yielding control to the e-commerce giant.
Alibaba’s Ant invests in Caixin
The voracious Alibaba (NYSE: BABA) is in 2 new M&A headlines as we head into the end of the week, led by word that its Ant Financial affiliate was an investor in a new fund-raising round in Caixin, one of China’s best respected financial media. A second headline has take-out dining pioneer Ele.me denying reports that Alibaba, which is already one of its biggest shareholders, will devour the company completely. Instead, Ele.me is saying it will continue working closely with Alibaba’s own take-out delivery service called Koubei.
Both headlines reflect a growing resistance by founders of these companies to outright ownership by Alibaba-related companies. In the first case, Caixin was quick to issue a statement saying Ant was only one of several new investors in its new funding round. Ele.me’s case is similar, quashing earlier speculation that it would ultimately get swallowed up by its cash-rich backer. Read Full Post…
