MULTINATIONALS: Political Resistance Grows to Zoomlion Bid for Terex

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Bottom line: Turmoil in the Republican Party could claim a growing number of proposed Chinese acquisitions of US firms as victims, as Republican candidates turn to China bashing to curry voter favor before November elections.

Opposition grows over Terex sale to Zoomlion

Election year politics could soon claim their latest victim in M&A between the US and China, with 2 more congressmen expressing their concerns about Chinese construction equipment giant Zoomlion’s (HKEx: 1157; Shenzhen: 000157) talks to purchase US crane maker Terex (NYSE: TEX). This development doesn’t surprise me very much, especially since the latest 2 lawmakers to joint the anti-China movement are both Republicans seeking to curry favor with voters on this relatively simple issue as their own party sinks into chaos.

I don’t usually write in much detail about US politics, since the intricacies of elections aren’t that relevant to China trade. But in this particular election, growing chaos within the Republican Party could soon create anti-China rhetoric that’s louder than usual. That’s because many Americans could quickly become frustrated with the Republican Party’s infighting, which could hurt its candidates’ election prospects. That could leading many Republican candidates to try to win voter favor by rallying around the relatively safe concern about China’s growing global influence.  

According to the latest reports, 2 more Republican congressmen, Mike Rogers and Walter Jones, have added their voices to a small but growing list of politicians voicing concerns about a Zoomlion-Terex deal. (English article) Another Republican, Duncan Hunter, was the first to voice his concerns about the deal last month, and he later got another Republic, Ryan Zinke, to join his cause. (previous post)

Zoomlion is reportedly pursuing a deal that would value Terex at about $3.2 billion, though no deal has been officially announced. Terex had previously reached a deal to be purchased by Finland’s Konecranes, but later said it might consider a higher offer from Zoomlion. Political opponents to the Zoomlion deal point out that one customer for Terex’s cranes is the US Defense Department, and thus its sale to a Chinese buyer could pose a national security threat.

Terex shares have moved steadily downward as the fledgling opposition grows, losing about 4 percent of their value over the last week. At their current level they now value the company at about $2.4 billion, or 25 percent below the reported offer price, meaning investors are probably skeptical that such a deal will close.

Hunter never called for an outright veto of the deal, but instead was simply calling for a strict review by the Committee on Foreign Investment in the United States (CFIUS), the government agency that reviews all cross-border deals for national security concerns. Like Hunter, the latest 2 congressmen have sent their “deep concerns” in a letter to US Treasury Secretary Jack Lew, who oversees CFIUS.

Cold War Rhetoric

In something that looks like a throwback to the Cold War, the letter from Jones uses the phrase “communist Chinese”, and also uses provocative language to note that they “have accelerated their acquisitions of US companies at an alarming rate”. Such language would almost be laughable if it wasn’t coming from an influential US politician.

These particular concerns are just the latest in a growing chorus of similar outcry that has killed at least 2 major deals over the last year and is threatening another. The 2 killed deals both involved Chinese purchases of US chip makers, including a development last month that saw Fairchild Semiconductor (Nasdaq: FCS) abandon talks to sell itself to a Chinese buyer. (previous post) Similar concerns are also threatening another deal by a Chinese buyer to purchase the Chicago Stock Exchange. (previous post)

At the end of the day, this kind of concern is probably likely at any time and almost inevitably will grow louder during an election year. The current Republican Party chaos will only make the anti-China card even more attractive for Republican candidates. Accordingly, I would give Zoomlion only a very small chance of closing its Terex purchase plan, and also wouldn’t be surprised if the Chicago Stock Exchange sale collapses.

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