Editorial: China Could Buy 433 General Motors With Their T Bills Alone
We made a huge mistake with our “SAIC may buy GM” story. We paid for our sins. The story created so much traffic that it literally melted two servers. TTAC’s China Syndrome. As you are painfully aware, TTAC was out of commission several times yesterday. A day after the story broke, the story broke our servers. Hit counters for all stories are currently SNAFU; they just gave up and went home. A huge amount of traffic keeps pouring in from China. And no wonder: a Chinese search for the same story produces 76,500 hits. If we’d run this story a few months ago, a wagon would have pulled up outside of TTAC World Headquarters, and they would have taken us away in straitjackets and a Thorazine drip in our veins. Now, a lot of people think GM is crazy for not doing the deal. A Connecticut hedge fund manager, who we reached for comment, looked at the screen, said “Ugh, the market is ugly.” When prodded to focus on GM and SAIC, he said: “If I’d be GM, I’d be in Shanghai right now, negotiating the deal. Then I would go to Congress and say: What are you going to do about it?”
Taking over GM would be just one in a long series of Chinese foreign deals. As early as 2003, Sinochem had invested $105m for the acquisition of gas assets in the United Arab Emirates. In 2004, Computer maker Lenovo bought IBM’s personal computer business for $1.75b. The Chinese consumer electronics firm TCL Corp. purchased the television business of French manufacturer Thomson SA, and with it the rights to the RCA logo. In 2005, China National Offshore Oil Company Ltd. (CNOOC) bid $18.5b, all cash, for Unocal. The deal was viewed as a threat to America’s security, and was withdrawn. Unocal settled for a $17b buyout by Chevron, in cash and shares, a good deal less than what the Chinese did bid.
In the same year, China’s appliance manufacturer Haier, assisted by private equity firms Blackstone and Bain Capital, bid $1.3b for Maytag. Haier was after the same what SAIC would get from GM in spades: A household brand name, and a nationwide distribution network that could vastly expand its sales. The Maytag man in blue would have been a good fit, and the strategic importance of washers and dryers would have been manageable. However, political pressure did set in again, and the lonely Maytag man remained without Chinese company.
“In 2007, acquisitions in the United States by foreign ventures hit $407 billion, up 93 percent from the previous year, according to Thomson Financial. The top countries investing were Canada, Britain and Germany; the Middle East and Asia — especially China — are quickly catching up,” wrote the Wall Street Journal. Last year alone, China bought nearly $10b worth of US companies. The same year, China liked working with Blackstone so much, that they bought at $3b stake in the private equity firm. A $5b stake in Morgan Stanley followed. The buying spree was caused by the lower dollar. Since July, the dollar went sky high. But wonders of wonders, the Chinese did not adjust their currency to the higher dollar, in Yuan terms, buying American is just as cheap as it was.
Yesterday, we discussed the huge spike of traffic with our friends at Gasgoo, in Shanghai. The same day, Gasgoo intensively grilled Philip Wylie and Joseph Gang, two leading professionals from Houlihan Lokey, U.S No. 1 restructuring investment banking firm. Said Gang: “The Chinese companies are quicker in evaluating and closing acquisitions today than they were five years ago. They have more capital from years of profitability and rapid growth in the domestic market to make foreign investments and many leading companies globalize through M&A which is a strategic priority.
“During the past one or two years, if we look at the larger deals in the automotive industry, you would find the Indian companies have been more aggressive in global auctions for controlling stakes and faster than Chinese companies. There are not many examples of Chinese companies purchasing foreign assets in the automotive industry. The most successful cases involve Nanjing Automotive acquiring the MG Rover brand and related assets in the Europe, and Wanxiang acquiring multiple component suppliers through primarily minority purchases of distressed assets in the United States.”
“The operational challenges of managing the complexities of integrating a global business would not be materially different for any foreign companies, whether Chinese or Indian.”
China doesn’t like to be overtaken by India. Again, Chang hints what may be going down. China teams up with private equity firms, some of which it already owns: “For Chinese companies who intend to expand into international markets through M&A, it could be an alternative to team up with a private equity group for not only financing (albeit at the cost of sharing ownership), but also operations and governance support.” Translation: If a private equity firm buys out a company like Chrysler (as it happened), nobody cries about reds under beds. And it just so happens that China owns a good chunk of a private equity firm. Along with a chunk of Morgan. Along with a big chunk of the U.S. Treasury.
Today, the Straits Times reports that “China is now officially the US government’s largest foreign creditor after overtaking Japan, in a development that signals Washington’s increasing reliance on Beijing to save its economy.” According to US Treasury Department figures, China became the largest foreign holder of United States Treasuries. As of September, the U.S. Treasury owes China $585b. With GM’s market cap now standing at a pocket change rate of $1.35b, and getting cheaper by the minute, China could buy 433 General Motors with their T bills alone.
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