Sichuan Tengzhong’s hopes to own the Hummer brand have been dashed due to its failure to comply with the deadline stipulated in the agreement with General Motors (GM). China’s Ministry of Commerce (MOFCOM), which is responsible for the approval of outbound investment by Chinese companies, has denied ever receiving an application from the bidder.
GM will now gradually close down its Hummer business operations and both parties will terminate the final agreement, in which both jointly decided that the acquisition would be completed by January 31, 2010. The deadline had already been extended once to the end of February 2010.
The deal was announced with great fanfare last year, symbolising as it did the global expansion of mid-tier companies. But at the same time, many industry experts were sceptical about the proposition; some said that regulators might balk at the deal given that the country was stressing the development of more environmentally friendly industries. “Hummer is such an opposite product to what the government is promoting. It is the kind of deal only a foreign company can try,” said a lawyer who does not wish to be named.
The failure of the deal also casts assertions on the legal work involved but most lawyers don’t think the legal expertise employed was to blame. “The time frame for this deal is long enough for legal advisors to get the documentation filed. I think this might be an internal issue within the bidder’s decision to buy. It’s not a complex transaction but it does carry quite a bit of controversy,” said a senior partner at a Beijing firm. Sichuan Tengzhong was advised by its international legal counsel Shearman & Sterling while Jun He acted as the company’s PRC counsel.
While the failure of the Sichuan Tengzhong-Hummer transaction may push mid-tier companies to think twice about their cross-border ambitions, lawyers believe the outlook for overseas acquisitions remains optimistic. “Some decisions might have been wavered by this deal, but there are also many other automobile transactions that have received speedy approvals that might spur on similar endeavours,” the partner added.
Beijing Automotive Industry Holding Corp (BAIC), China's fifth-ranked automaker, closed its US$200m purchase of technology platforms from GM's Saab in just two weeks and Zhejiang Geely Holding Group's bid to buy Ford's Volvo car unit has been progressing smoothly.
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