AMSTERDAM China's Xinmao Group dropped its audacious 1 billion euro ($1.3 billion) cash bid for Dutch cablemaker Draka DRAK.AS on Thursday, leaving Italy's Prysmian (PRY.MI) free to seal a lower-priced deal and form an industry leader.
Xinmao's attempt to grab a slice of the fiber optic cable market by buying an overseas company had been seen as a test of the ability of Chinese companies to complete such acquisitions.
But Xinmao, which gatecrashed Prysmian's agreed 830 million euro cash and share takeover of Draka in November, said it would be unable to launch its bid before Prysmian's offer closed.
"Xinmao has after careful consideration regretfully concluded that its intended offer for Draka is no longer feasible," the Chinese group said in a statement.
The group had faced an uphill battle to launch its offer in time as it waited for Chinese government approval for the move. Prysmian's offer, launched on Thursday, is due to close on February 3 -- 10 days before Xinmao had said it would be able to put its bid to Draka shareholders, including key investor Flint Beheer, a family-run fund which controls 48.5 percent of Draka.
Flint, which has said it will accept Prysmian's offer, was not available for comment.
Draka shares, which had been trading between the value of the Xinmao and Prysmian offers, slumped after Xinmao's statement to be down nearly 10 percent at 17.67 euros. Prysmian was up 8 percent at 14 euros on relief it would not have to raise its bid. The Italian group said it was now confident of success.
"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 spokesman Michael Bosman said the company had noted Xinmao's statement and "will move forward with Prysmian".
He added that since French cable industry leader Nexans' (NEXS.PA) initial approach to Draka on October 18 and Prysmian's offer for the Dutch company on November 22, there had been plenty of time for Xinmao to prepare its offer.
"We have done our fiduciary responsibility. We have co-operated with Xinmao and Prysmian and as we have stated yesterday ... there was enough time for Xinmao to arrange approval and financing," Bosman added.
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.
Nexans declined comment.
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.
"Prysmian shares are now getting a boost, which is logical. 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 Kempen, said.
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.
Jonk said he did not expect European competition hurdles for the Prysmian-Draka deal. "I think it has been well thought trough. Perhaps they will have to sell some small operations but I don't think this is a problem," Jonk said.
Prysmian is being advised by Goldman Sachs, Mediobanca and Banca Leonardo. Draka's financial adviser is JP Morgan and Allen & Overy acted as its legal counsel. Xinmao was advised by Catalyst Advisers. (Writing by Alexander Smith; Editing by Andrew Callus and David Holmes) ($1=.7609 Euro)