M&A: CNOOC Yields, AgBank Insures 中海油为收购尼克森再让步 农行收购嘉禾人寿股份获批
I’ll start the day with a look at news on 2 M&A deals, one domestic and one international, that show how difficult such transactions still are for Chinese firms. The first involves what looks like a big step forward in oil major CNOOC’s (HKEx: 883; NYSE: CEO) bid for Canadian rival Nexen (Toronto: NXY), which is controversial only because of its political overtones. The second involves Agricultural Bank of China’s (HKEx: 1288; Shanghai: 601288) receipt of regulatory approval to buy a controlling stake of an insurance company named Jiahe, though in this case what’s most interesting is the long amount of time it took to win the approval.
Let’s take a look at the CNOOC deal first, as that’s the one that everyone has been closely following since China’s leading oil exploration company announced the $15 billion bid back in August. (previous post) Since that time, debate has been running non-stop on whether Canada will approve the transaction, which in my view is really a commercial deal with little or no implications for national security.
I suspect the Canadian government of Stephen Harper wants to approve the deal, since Nexen could really use the big capital infusion it would get from CNOOC; but Harper is also keenly aware that giving approval could force hims government to face a backlash from xenophobic Canadians in the next elections.
The latest foreign media reports say that CNOOC has reportedly agreed to new conditions for approval of the deal, including guarantees that Canadians will have at least half of the seats on Nexen’s board and half of its top management positions after the merger. (English article) CNOOC has already made a number of other moves to ease Canadian concerns, including a promise to list its shares in Toronto after the merger and plans to make Nexen’s main Canadian offices into one of its global regional headquarters.
This latest concession looks designed to give Harper and his government an excuse to finally approve the deal, with a decision due by December 10 following 2 extensions of 2 previous deadlines. I previously predicted the deal will ultimately get approved since it really is just a commercial transaction with no national security implications, and this latest development seems to indicate that Harper’s government will indeed let acquisition go forward.
Meantime, I wanted to briefly discuss the AgBank deal, not so much for its strategic implications but for the rather long period it took to win regulatory approval. AgBank first announced its plan to pay 2.6 billion yuan, or about $420 million, for a 51 percent stake in Jiahe Life back in Feburary 2011, but has only now announced it received regulatory approval for the deal. (company announcement) That means the deal took nearly 2 years to win approval — an extremely long time that would have seriously undermined any similar suitor that had to wait so long in a competitive western market.
But of course this isn’t a western market, and Chinese banking and insurance regulators were apparently in no hurry to approve what otherwise looks like a relatively simple deal. AgBank is following many of its banking and insurance peers by broadening their services, as China removes restrictions that previously prohibited banks and insurers from moving into each others’ product areas.
But the long time period needed to win approval probably reflects AgBank’s relatively weak connections with many of the regulators that had to approve the deal. It also probably reflects strong obstructionism by the AgBank’s better connected banking and insurance rivals that were in no hurry to see the deal approved. That’s what politics is all about, and over the longer term its relative lack of clout with Beijing regulators could ultimately put AgBank at a distinct competitive disadvantage to many of its peers.
Bottom line: Canada looks likely to approve CNOOC’s bid for Nexen after new concessions, while AgBank’s lengthy wait for approval of an insurance acquisition reflects its lack of clout in Beijing.
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