UPDATE 5-China's Xinmao pulls plug on Draka cable bid

Thu Jan 6, 2011 12:40pm EST

* Unable to launch bid before Prysmian offer closes

* Setback to M&A ambitions of Chinese companies

* Prysmian says confident bid will succeed

* Draka shares close down 8.4 pct, Prysmian up 9.7 pct

(Adds shareholder group comment, details, closing share prices)

By Aaron Gray-Block and Gilbert Kreijger

AMSTERDAM, Jan 6 (Reuters) - Chinese group Xinmao dropped an audacious 1 billion euro ($1.3 billion) bid for Dutch cablemaker Draka DRAK.AS, leaving Italian peer Prysmian (PRY.MI) free to form an industry leader through a lower-priced deal.

Xinmao's failure to grab a slice of the fibre optic cable market by buying an overseas company is a setback to the M&A ambitions of Chinese companies.

It follows the high-profile collapse last year of a bid for the General Motors (GM.N) SUV brand Hummer by Sichuan Tengzhong Heavy Industrial Machinery. [ID:nN24166804]

Xinmao, which gatecrashed Prysmian's agreed cash and share takeover of Draka in November, conceded defeat on Thursday, saying it would be unable to launch its own bid before Prysmian's 870 million euro offer closed.

"Xinmao has, after careful consideration, regretfully concluded that its intended offer for Draka is no longer feasible," it said.

The group had faced an uphill battle to bid in time as it waited for Chinese government approval.

Prysmian's offer, launched on Thursday following regulatory approval, closes on Feb. 3, some 10 days before the date by which Xinmao said it would be able to file its bid with Dutch regulators.

Key to success for any bidder is Flint Beheer, a family-run fund which controls 48.5 percent of Draka and has said it will accept Prysmian's bid. Flint was not available for comment.

"It was basically going to be very difficult process for Xinmao ... What they need to learn here is that they need to move faster and get Chinese approvals before and not after the fact," SNS Securities analyst Martijn den Drijver said.

Draka shares, which had been trading between the value of the Xinmao and Prysmian offers, closed down 8.4 percent at 17.71 euros, just below the implied value of Prysmian's offer of 17.94 euros. Prysmian bounced 9.7 percent to 14.16 euros on relief it would not have to raise its bid to win over Draka investors.

The Italian group said it was confident of success.

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For a TAKE A LOOK: [ID:nLDE7050XJ]

For M&A deal table: r.reuters.com/kyb46q

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ENOUGH TIME

"Prysmian shares are now getting a boost ... The threat of a higher offer, partly in shares, has gone away. All synergies can now be divided among the original number existing and new shares," Joop Witteveen, head of Dutch small cap investments at Draka shareholder Kempen Capital Management, said.

Draka said since an initial approach by French cable industry leader Nexans (NEXS.PA) in October and Prysmian's bid there had been time for Xinmao to prepare its offer.

"We have done our fiduciary responsibility. We have co-operated with Xinmao and Prysmian and ... there was enough time for Xinmao to arrange approval and financing," Draka said.

Draka had questioned Xinmao's ability to finance its 20.5 euros per share offer, although the Chinese company had maintained it had funding in place from a Chinese bank.

Xinmao's withdrawal, however, will not necessarily make it easier for a new rival offer to emerge, such as from Nexans, said Niels Lemmers at the Dutch shareholders' group VEB.

Any offer must be at least 16.3 percent higher than Draka's share price prior to the launch of a rival offer for Flint to cancel its commitment with Prysmian, the offer memorandum shows, requiring a bid of more than 20 euros per Draka share.

Kempen Capital Management said it would talk to Prysmian about selling its preference shares, which amount to 5.19 percent of Draka's total outstanding capital. These shares are unlisted and not subject to Prysmian's offer. Jack Jonk, head of equities at Delta Lloyd Asset Management which manages 2 to 3 percent of Draka shares, had not yet decided whether he would offer Draka shares to Prysmian.

But he did not expect European competition hurdles for the Prysmian-Draka combination. "Perhaps they will have to sell some small operations but I do not think this is a problem," he said.

Prysmian is being advised by Goldman Sachs, Mediobanca and Banca Leonardo. Draka's financial adviser is JP Morgan and its legal counsel is Allen & Overy. Xinmao was advised by Catalyst Advisers. (Writing by Alexander Smith; Editing by Andrew Callus and David Holmes) ($1 = 0.7609 euro)

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