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Haier: a model to follow with F&P deal

PUBLISHED : Friday, 19 October, 2012, 11:09am
UPDATED : Friday, 19 October, 2012, 11:11am

The brief but colorful tale of one of China's better-executed overseas M&A deals appears to be nearing a happy ending, with word that home appliance giant Haier's (1169.HK) slightly sweetened takeover bid for Fisher & Paykel (NZ: FPA) has finally won approval from the New Zealand company's board. Haier's raised bid of NZ$1.28 per share appears to be just the right amount it needed to convince F&P's board to approve the deal, marking a seven per cent increase over an initial offer of NZ$1.20 per share. I've had nothing but praise from the start for Haier in its handling of this deal, which looks like a good template for other Chinese companies to follow.

At the most basic level, the deal breaks a problematic pattern that has seen Chinese companies mostly target ailing western peers for their overseas acquisitions. While targeting such companies results in bargain prices, such acquisitions are often so plagued with problems that the deals ultimately end in failure, as major companies like Lenovo (0992.HK), TCL (Shenzhen: 000100) and SAIC (Shanghai: 600104) have all discovered.

By comparison, F&P was a well-known company that had fallen on hard times, but was back on the mend after fixing many of the problems that led to its decline. That means the potential for integration problems is much smaller, since Haier doesn't really need to "fix" anything but can simply let F&P's management keep doing their job.

From a shareholder perspective, Haier has also done a good job in this particular deal. It originally purchased 20 per cent of F&P in 2009, giving it a chance to become familiar with the company and its management before launching its bid for a controlling stake. That initial takeover bid, which came last month at NZ$1.20 per share, also looked well conceived, as Haier greatly raised its chances for success by consulting with both F&P management and the company's second largest stakeholder before launching the offer.

That kind of friendly cooperative approach contrasts sharply with another big M&A deal that officially died earlier this week when state-run energy giant Sinopec (0386.HK; Shanghai: 600028; NYSE: SNP) withdrew its clumsy hostile bid for China Gas (0384.HK), the privately run operator of a piped natural gas network. After Sinopec launched its initial offer late last year, it soon became clear the state-run giant had made little or no attempt to negotiate a friendly takeover with China Gas beforehand.

But returning to the main story, Haier's initial bid for F&P looked set to succeed when F&P's independent directors created a new obstacle by saying the Haier offer was too low, and that the company should be valued at NZ$1.28 to NZ$1.57 per share. So Haier has now returned and offered the minimum amount requested by the F&P independent directors, who undoubtedly were just trying to get a bit more money for their shareholders.

At the end of the day, this deal is certainly an excellent model for other Chinese companies to follow in their future overseas M&A. While only time will tell if the deal ultimately succeeds, this kind of strong execution greatly boosts the chances of longer-term success and should give Haier a strong foothold into the lucrative New Zealand and Australian markets. Good job, Haier!

Bottom line: Haier's friendly takeover of F&P stands a good chance of success due to good execution, and could give the company a strong entry point to the New Zealand and Australian markets.

The opinions expressed in this article are the author's own. To read more commentaries from Doug Young, click on youngchinabiz.com