China, Looking Out For SOEs, Vetoes Shipping Alliance
An unprecedented veto by China’s anti monopoly regulator is shining a spotlight on the nation’s growing clout in global corporate deals, and is also providing clues about how Beijing could use regulatory powers to protect major state-owned firms. This particular deal has implications for both the trade and corporate sectors, as Beijing has formally blocked a deal that would have seen 3 of Europe’s top shipping companies form a global alliance. That alliance might have benefited the entire industry with lower prices and reduced costs, but it almost certainly would have posed a challenge to China’s major state-owned shippers.
This isn’t the first time China has vetoed a major corporate deal, as the nation’s Ministry of Commerce previously blocked Coca Cola’s (NYSE: KO) purchase of Chinese juice maker Huiyuan (HKEx: 1886) in 2010. A year later it also vetoed the sale of US vehicle maker Hummer to a Sichuan company called Tengzhong. But unlike those deals, the latest one blocked by Beijing doesn’t involve any Chinese companies.
That deal would have seen Danish shipping giant A.P. Moller-Maersk, Switzerland’s Mediterranean Shipping Co and France’s CMA CGM form a network to pool their shipping resources and cut costs. I’m no expert in this field, but I do know that the shipping sector has been in a prolonged downturn for the past few years due to stiff competition and overcapacity. Two of China’s largest shippers, China Cosco Holdings (HKEx: 1919) and China Shipping Container Lines, (HKEx: 2866; Shanghai: 601866) have been posting massive losses in the last few years, even though the former made a small profit last year by selling some assets to its state-owned parent to avoid de-listing.
Against that backdrop, the industry certainly did seem to be in need of consolidation, which was what the European alliance would have provided. One report pointed out that Maersk alone was expected to save about $1 billion in annual costs from the alliance.
The US and Europe had both approved the deal, and the 3 shipping companies thought they had also addressed Beijing’s concerns. But apparently they didn’t, since the Ministry of Commerce came out and said it wouldn’t approve the alliance. That surprise announcement hit shares of Maersk, which tumbled 5 percent after the news. (English article)
I don’t want to delve too deeply into what the news might mean for the shipping industry, as I would risk exposing my lack of knowledge about the sector. Instead, this particular example shows that China is likely to become increasingly assertive in the global M&A and corporate deal spaces, which could mean trouble for major deals that don’t involve any Chinese companies. What’s more, Beijing might block deals that could pose challenges to major Chinese players, especially big state-run companies.
Like many other governments, China regularly defends its major corporations when it feels they are being treated unfairly outside their home market. Beijing has complained loudly in a number of recent high-profile such cases, including anti-dumping moves against Chinese solar panel makers in Europe and the banning of Chinese telecoms equipment sales in the US over national security concerns.
But this latest case is slightly different, as it involves a purely commercial matter that wasn’t particularly controversial and comes in an industry clearly in need of consolidation. In this case, the European companies not only misjudged Beijing’s desire to protect its own shippers, but they also should have realized that the big Chinese shippers are all state-owned.
Thus their alliance threatened not only the Chinese shippers, but it also indirectly threatened Beijing itself since the government is the shippers’ controlling stakeholder. This new signal could be ominous for global M&A from other sectors dominated by state-run companies in China, such as banking and energy, as it means that China could try to block such deals if it feels its own domestic players could be threatened.
Bottom line: China’s veto of a major European shipping alliance reflects Beijing’s growing assertiveness in global M&A, and its desire to protect major state-owned firms.
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