Midea, China’s biggest maker of home appliances, looks set to waltz into the big league if it succeeds in its takeover of German robotics firm Kuka next week. For the Guangdong-based industrial giant , the deal is not just another acquisition, but a valuable opportunity to establish its global credentials, cut manufacturing costs and gain access to valuable technology that is crucial for its next stage of development. Kuka already supplies key components to auto giants like Volkswagen, BMW and Tesla and this could come in more than handy for Midea. Though the takeover has faced considerable objection from German policymakers and industry bigwigs, the dice seems to have been more or less cast the Midea way. Though the extended offer period does not expire till Wednesday, analysts expect it to be a done deal as the Chinese firm already owns about 86.49 per cent of Kuka. In June, the maker of air-conditioners, rice cookers and other home appliances said in a filing to the Shenzhen Stock Exchange that it had no intention of delisting Kuka for the next seven-and-a-half years. Though the move followed an agreement between the two companies, it clearly spelt out its intentions of retaining the Kuka identity. In any case, the German stock market does not have a free float requirement. China’s Midea Group bids for greater ownership of robot maker KUKA; German company’s shares surge Midea’s move is the latest example of Chinese companies buying into advanced machinery companies across the world. The global machinery sector has seen a flurry of acquisitions from Chinese company after the country made ‘manufacturing upgrading’ a national strategy last year in its “made in China 2025” blueprint. Analysts equate the plan to Germany’s “fourth industrial revolution”. Deal value of Chinese companies’ acquisition into the outbound machinery sector has already surpassed the total seen in the previous six years to US$6.43 billion year to date, according to data from Dealogic. The research firm estimates the deal value of Midea’s acquisitions to be about US$4.48 billion. Brett McGonegal, chief executive of Capital Link International, a financial advisory firm, believes that such deals are perfect opportunities for companies like Midea to focus on cost savings through technology and innovation, but also opportunities to become market leaders. “Robotics and automation are becoming popular targets for acquisitions as they greatly increase efficiency and yields while also helping on the cost side,” he said. But for Midea, it has been a long journey to gain recognition in markets outside the Chinese mainland. Kuka’s robotics technologies will help Midea to offset rising labour costs Cai Yirun, analyst, GF Securities Set up in 1968 in Foshan, Guangdong, a city famous for being the cradle of Southern-style Kung Fu, Midea had been one of China’s “big three” home appliance makers after Qiangdao based Haier and Zhuhai based Gree. Cai Yirun, an analyst with Guangzhou-based GF Securities tips Midea as a rising star. “Since 2013, Midea’s operational efficiency, sales ability and product competitiveness has been rising steadily. It has been on an upward momentum,” he said. Acquiring Kuka will accelerate manufacturing automation and reduce costs for Midea, she said adding that it would also expose Midea to the global robotics business. “But Midea still needs to strengthen its brand recognition. In terms of air-conditioners, Gree is a stronger brand in China, whereas in fridges it is Haier which is the leader,” she said. “Kuka’s robotics technologies will help Midea to offset rising labour costs. However, consolidating Kuka’s earnings into the Midea Group will not give a short-term boost to Midea’s financial condition, except for revenue,” she said. Midea reported revenue of US$22.17 billion last year, the highest among domestic peers, which helped it become the first Chinese household appliance maker in the Fortune Global 500 ranking. The list, released in June ranked the company at the 48th position. The company’s net profit jumped by 21 per cent year on year to US$2.02 billion. Going global seems to be very much on Midea’s mind as the Kuka takeover is the third such deal this year. In March, it acquired an 80.1 per cent stake in Toshiba’s home appliance unit, worth US$474 million. Two months later, it announced its plan for Kuka and followed it up with a deal early this month for an 80 per cent stake in of Italian air conditioner maker Clivet. Xiaomi's appliance bet with Midea seen diluting its smartphone focus Industry analyst, however, feel that Kuka would well turn out to be its most prized overseas asset. Last year, Kuka earned revenue of € 2.9 billion and net profit of € 85 million, making it Germany’s largest robotics company and the fourth largest in the world. The company focuses on tailor-made industrial robots for various manufacturers, like a production line for Coca-Cola and an aircraft engine plant of Boeing. The German firm is expecting annual sales from China to improve from the current € 425 million to € 1 billion by 2020. Andy Gu, Midea’s vice president, said in early May that Midea could help Kuka realise its ambitions in the Chinese market. “Where we can help Kuka is mostly in China. ..Given our meaningful footprint in China we can help Kuka accelerate growth in terms of our customer base and supply chain,” he said. Cai from GF Securities said the competition in China’s robotics business is already intense and Midea needs to have a comprehensive strategy to promote Kuka. McGonegal from Capital Link sees a lot of synergies in the deal. “Midea is looking to gain reach through access to the Kuka distribution network, in addition to the sales and service centres, primarily in the Americas and Australia…The mutually beneficial combination will add to the reach of the combined company and help slim costs and increase the bottom line,” he said. Statistics from Reuters shows year-on-year net margin for the company is improving – net profit for the first quarter edged up from 7.4 per cent in 2014, to 8.6 per cent in 2015, and reached 10.8 per cent in 2016, above industry medium at 8.2 per cent. Fang Hongbo, the chairman of Midea earlier said to improve profitability, the company had laid off almost half of its 196,000 workforce, closed down production lines that were not relevant to its core business and eliminated low-margin products. According to the investors agreement announced in late June, Midea will maintain Kuka’s independence and refrain from restructuring or delisting Kuka. It would also take steps to protect Kuka’s data and preserve existing factories and jobs. Jost Wübbeke, head of the economy and technology programme at the Mercator Institute for China Studies said: “In the medium term, agreements between the two enterprises will prevent a technology transfer, but in the long-term it is likely that Midea will make use of Kuka’s knowledge and technology. Germany’s technology advantage will be at stake if similar strategic investments in Industry 4.0 enterprises take place at a large scale.” Midea’s move succeeded as many enterprises and politics in Germany “have a very short planning horizon”. “They don’t see the danger of a long-term strategy gradually hollowing out Germany’s technological leadership,” Wübbeke said. By acquiring technology through foreign investment China will be able to make significant progress in advanced technology. Last year, the state council of China issued a blueprint called “Made in China 2025”, underlying a national mission of transforming the country into an advanced manufacturing powerhouse. The strategic tasks include accelerating the development of smart manufacturing, with research and development of robotics as a highlight.” “China’s Made in China 2025 strategy is an ambitious industrial policy for catching up technologically and substituting foreign technology. The strategy can also be read as a tremendous shopping list for acquiring technology abroad,” said Wübbeke. The takeover offer has also led to renewed investors interest in Midea. The company’s shares have risen by 6.43 per cent and closed at 27.78 yuan at Shenzhen Stock Exchange on Thursday. Yesterday the shared edged up by another 1.51 per cent to 28.20 yuan. Share prices of Kuka have surged by more than 30 per cent on the Frankfurt Stock Exchange.