Xinmao’s Draka deadline looms, doubts surround $1.3 billion bid

By Terril Yue Jones

BEIJING (BestGrowthStock) – China’s Xinmao Group is fast approaching a deadline to make a formal bid for Dutch cable maker Draka (DRAK.AS: ), whose board is casting doubts on the little-known Chinese firm’s ability to come through on its 1 billion-euro ($1.3 billion) offer.

The emergence of Xinmao as a rival bidder for Draka has highlighted the growing influence and ambition of Chinese companies on the global M&A scene, although investors are also skeptical this deal can be consummated.

Draka had already accepted an 833 million euro cash and share offer from Italian cable maker Prysmian (PRY.MI: ) to form the world’s largest supplier of steel cables used in elevators, manufacturing and construction before Xinmao crashed that party last month with its all-cash offer.

Under Dutch law, Xinmao must on Monday declare when it will make a formal bid for Draka, or walk away from a deal over which Xinmao insists should be taken seriously.

Xinmao planned to hold a news conference later on Monday, suggesting it was likely to go ahead with its 20.5 euro per share bid, Dutch newspaper Financieele Dagblad reported.

A Xinmao spokeswoman at the company’s headquarters in the eastern port city of Tianjin said on Monday there was nothing to report yet and was not able to comment on plans for a news conference.

“They still have several things to work out,” Ma Jinjin told Reuters.

On Friday, Draka expressed its doubts about reaching a deal with Xinmao, citing concerns over financing and a lack of progress the Chinese company had made in securing approvals in Beijing, sparking a rebuke from Xinmao’s Dutch adviser.

A spokeswoman at the State Council, China’s cabinet, reached by telephone on Monday said she had no information on Xinmao’s bid. Chinese companies, however, frequently wait until after a deal meets approval on all sides before seeking government approval.

LITTLE KNOWN BIDDER

Draka had earlier rejected a 15 euro per share bid from France’s Nexans (NEXS.PA: ) as too low, and had objected to Nexans’ plan to split the company up.

Draka shares closed at 19.24 euros on Friday, above Prysmian’s 17.2 euro per share bid but almost a euro below Xinmao’s, suggesting investor uncertainty about deal going through.

Xinmao — a closely held conglomerate with a wide range of interests — has said it is particularly interested in Draka’s optic cable communications business, but has been reluctant to provide much information about its finances and intentions. It has said it has support from China’s Minsheng Bank (600016.SS: ) to finance the full amount of the deal.

Numerous banking and consulting experts contacted in recent weeks had never heard of Xinmao and wondered whether its lack of international experience would work against it pulling off such a big deal.

“I’m highly skeptical,” said an investment banker who works with Chinese and foreign companies. “Do they have the financial capacity? Their listco is too small,” he said, referring to Tianjin Xinmao Science & Technology (000836.SZ: ), which is listed on the Shenzhen Stock Exchange and has a market capital of about 3 billion yuan ($450 million).

“Why is it so hard for anyone to find out anything about them?” said the banker, who spoke on condition of anonymity. “You don’t see any indication they’d be able to handle this.”

Doubts about Xinmao aside, China has been ramping up its presence on the global M&A stage in recent years.

Last year Chinese companies spent $42.6 billion spent abroad, third among the biggest foreign M&A investor nations after the United States and France. Ten years ago, China ranked 12th in that category, the data show.

The overseas acquisition push was fueled by China’s cash rich and state-backed institutions to grow business beyond the domestic market and has been mainly focused in the energy and mining space.

However, China has had limited success with large-scale international takeovers of industrial and technology companies. China’s TCL Multimedia (1070.HK: ) bought the TV business of Thomson SA in 2003 and PC maker Lenovo (0992.HK: ) bought IBM’s (IBM.N: ) PC business in 2004 for $1.25 billion but both struggled to turn around the businesses.

Sichuan Tengzhong Heavy Industrial Machinery Co, an obscure Chinese industrial equipment maker based in China’s Sichuan province, tried and failed to buy GM’s (GM.UL: ) money-losing Hummer brand earlier this year, though car manufacturer Geely Automotive (0175.HK: ) this year successfully bid for Swedish automaker Volvo, at the time a division of Ford Motor Co (F.N: ).

But while the international community harbors doubts, Xinmao is confident it can reel in Draka, the world’s seventh-largest cable maker.

Xinmao is a big name in its hometown of Tianjin and Xinmao has close ties to the government there.

With a large portfolio of industrial parks and office buildings, Xinmao has considerable fixed assets, “so you don’t need to worry about our capital,” according to a senior executive there who is not involved in the Draka bid and spoke on condition his name not be used.

(Additional reporting by Greg Roumeliotis and Sara Webb in AMSTERDAM and Shengnan Zhang in BEIJING; Editing by Lincoln Feast)

Xinmao’s Draka deadline looms, doubts surround $1.3 billion bid