Observers who followed China’s SAIC coveting of shares in the upcoming GM IPO (only 3 days to go!), and who hoped/feared that SAIC would buy a big chunk of GM, will be disappointed/relieved to hear that SAIC is content with a more or less symbolical 1 percent share in the General.
Reuters has it on good authority (“four people familiar with the matter”) that SAIC and GM have reached an agreement in principle that cements the 1 percent deal. The deal is contingent on Chinese government approval, but this is expected to be fast tracked and should happen today before the U.S. even gets up.
So the big Chinese buy-in is just a lot of hot air? Wait until you hear what SAIC received as a deal sweetener.
As part of the deal, SAIC will gain access to GM’s sales networks outside of China, including Europe, Reuters heard from one of its sources. So SAIC drops around $500m (that’s what 1 percent would cost at the expected valuation) on GM, receives a supposedly hot, and vastly undervalued stock that will pop into the stratosphere by the end of the week, and they get GM’s worldwide dealer channel thrown in?
There’s probably more to it. “Access to GM’s sales networks outside of China” can mean anything, from selling Made-in-China Chevy Sails in South America and elsewhere (already happening), to selling SAIC’s MGs through GM dealerships (as Reuters suspects), to selling Made-in-China Chevys and Buicks all over the world.
Why such a sweetener is needed if “GM’s common offering is oversubscribed by at least five times,” as the DetN has it, is anybody’s guess. I bet even if we pass the hat around and collect a billion amongst ourselves to buy 2 percent of GM, we won’t get access to GM’s worldwide sales channel. At one point last week, U.S. and Chinese government officials became involved in the discussions between GM and SAIC, Reuters heard. Maybe that made the difference.
SAIC doesn’t need a large chunk of GM stock. They already own 51 percent of the Chinese joint venture, GM’s biggest market. They had also received half of GM’s prized (but underdeveloped) India business, key to the next market to explode. Now they receive the keys to the rest of the world. The idea behind a Chinese joint venture always was to get access to a hot market, but to keep the Chinese joint venture partner in the Chinese box: No exports! That box has been shredded.
What did Ed write a year ago? “With the Chinese government pushing for consolidation in the auto industry, SAIC may see GM as a dying host from which to springboard into international prominence.” Again, TTAC prophecy turns into reality.