Haier Breaks China Pattern of Sickly M&A 海尔打破中国并购旧模式
I have to admit that my first reaction was one of skepticism when I read earlier this week that Chinese home appliance giant Haier (HKEx: 1169) was weighing a bid for New Zealand’s Fisher & Paykel (NZ: FPA), as the bid appeared to follow a familiar and largely unsuccessful pattern for Chinese companies making overseas M&A. But a closer inspection of the financials reveals that after previously falling on hard time, F&P may actually be a company on an upward trajectory, giving this potential acquisition a much better chance of success.
But I may be getting a bit ahead of myself, so let’s backtrack a bit to look at this latest overseas M&A deal by a Chinese firm that actually marks a refreshing change from previous pattern. The deal I’m talking about has seen Haier, based in the northeast seaside city of Qingdao, seek to take over F&P, a well known brand in Australia and New Zealand. Haier is offering NZ$1.20 per F&P share, marking a hefty 60 percent premium over levels where F&P’s shares were trading before rumors of the deal first broke out earlier this week. (English article)
Haier already owns 20 percent of F&P, after buying the stake in 2009 for around NZ$0.80 per share. In an approach that increases this new offer’s chances of success, Haier has already secured the agreement of F&P’s second biggest shareholder which holds 17 percent of the company, That means it will only need to get another 13 percent of F&P’s shares to own a controlling majority stake.
While the deal’s chances of success look good from this strategic share-based perspective, I’m much more impressed with Haier for its broader approach to this particular acquisition, which marks a positive departure from the traditional Chinese pattern. China watchers will know that I’m referring to the trend of the last decade that has seen Chinese companies acquire struggling overseas assets for what look like bargain prices at the time. But of course there’s a reason why those assets were being sold for low prices, namely because they had numerous problems.
Accordingly, big names like TV maker TCL (Shenzhen: 000100), car maker SAIC (HKEx: 600104) and PC maker Lenovo (HKEx: 992) all struggled with major overseas purchases that later turned out to be largely failures. This latest case with Haier looks a bit different, and appears to break out of the old pattern. The New Zealand company struggled for much of the first 2 years after Haier purchased its initial 20 percent stake in 2009, with the company’s shares trading as low as NZ$0.34 as recently as January as it struggled with weak sales and a strong New Zealand dollar.
But its fortunes have shifted markedly in 2012, with the company reporting a strong rebound in its profits in the first 4 months of its fiscal year that began in April. F&P further forecast that its profit for the current fiscal year would rise sharply, perhaps as much as doubling over the previous year.
In my view, buying this kind of company on an upward trajectory is a much smarter approach than buying one with lots of problems, even if the former approach means paying a big premium like the one Haier is offering. At the end of the day, it’s still obviously too early to say if this new purchase will succeed, assuming Haier gets the controlling stake in F&P it is seeking. But at the very least, by pursuing a healthy company like F&P, Haier is greatly increasing its chances of success, providing it with a well-respected global brand as it tries to build its worldwide presence.
Bottom line: Haier’s bid for New Zealand’s recovering Fisher & Paykel stands a good chance of success by breaking with an older Chinese trend of targeting ailing companies for global M&A.
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