Xinmao says has funding for Draka deal

By Marcel Michelson and Xie Heng

AMSTERDAM/BEIJING (BestGrowthStock) – Chinese group Xinmao said it had financing for its proposed 1 billion euro ($1.3 billion) offer for Draka (DRAK.AS: ), keeping alive prospects of a bid battle for the Dutch cablemaker.

Xinmao said on Monday Minsheng Banking Corp (1988.HK: ), China’s No.7 listed lender, had confirmed its commitment to finance an offer for Europe’s largest optical fibre-maker Draka, which has attracted three suitors in the space of five weeks.

With no track record of international acquisitions, Xinmao’s ability to show it can finance an offer was crucial to winning credibility against an 813 million euro cash-and-share offer from Italian company Prysmian (PRY.MI: ), the world’s second-largest cablemaker, which Draka accepted last week.

“We continue to wonder how a company the size of Xinmao can support the financial burden of an acquisition with an enterprise value of around 1.5 billion euros,” Prysmian chief executive Valerio Battista said on Monday.

Draka shares ended flat at 19.11 euros, below Xinmao’s proposed 20.5 euro bid but still more than 20 percent above the 16.68 euros value of Prysmian’s offer at current market prices.

Draka had previously rejected a 731 million approach from French group Nexans (NEXS.PA: ), the world’s top cable-maker.

The possibility of a Chinese takeover prompted Italy’s industry minister, Paolo Romani, to say companies in strategic sectors such as Draka should stay in European hands. He called Xinmao’s offer a “hostile bid” and backed Prysmian’s move.

Prysmian’s CEO said he hoped European institutions and the Dutch government would also show sensitivity to the issue, adding a new group comprising Prysmian and Draka would be able to invest about 500 million euros over three years.

Draka had said on Friday it wanted more information about the identity, ownership and financing of the Chinese company.

“If our questions are being answered then we will have a situation of two bids on the table and we will look at them,” Draka spokesman Michael Bosman said.

NO PROBLEM

Contrary to Italy, the Dutch state said last week it had no problem with a Chinese offer. As is common with many Dutch companies, Draka has some anti-takeover defences and can issue preferential shares to outvote any raider.

One of the conditions of the Minsheng financing is a final agreement between Xinmao and Draka with respect to a merger protocol, according to the Chinese company’s statement.

Xinmao said it would say in four weeks from November 22 whether it will apply for approval of an offer memorandum.

Minsheng, which attracted investors like George Soros and Singapore state fund Temasek (TEM.UL: ) to its $3.9 billion IPO, was prepared to be flexible with the type of financing.

This might include not just a bank loan but also support from the bank’s lease financing operation, said a source close to the deal who declined to be named.

Xinmao was founded in 2000 and employs around 30,000. The only other deal which a unit of Xinmao has done was to buy a 17 percent stake in a group company for about $6 million.

Xinmao said its bid for Draka aimed to use the latter’s core technologies to develop the Chinese market, which accounted for 46 percent of global demand for fibre optic cable in 2009.

(Additional reporting by Sara Rossi and Stephen Jewkes in Milan and Zhang Shengnan; Editing by David Holmes and Dan Lalor)

Xinmao says has funding for Draka deal