Chinese firms face U.S. M&A hurdles

NEW YORK Mon Apr 4, 2011 4:06pm EDT

NEW YORK (Reuters) - Chinese firms face a series of regulatory, political and procedural challenges in buying U.S. companies, which is driving them to other countries that are seen as friendlier, senior dealmakers said on Monday.

Chinese companies see the U.S. market as heavily regulated and intensely competitive, and they are looking elsewhere for buying opportunities when they can, bankers and lawyers said at the Reuters Global M&A Summit in New York.

"When you step away from technology and when you step away from natural resources, I am not sure that the U.S. is remotely high on the list of where Chinese corporates or entrepreneurs would like to acquire," said Cary Kochman, joint global head of M&A at UBS. UBSN.VX

"Unless there is this strategic compulsion in these particular areas I think it is unlikely we are going to see a widespread outbreak of M&A among the other sectors," Kochman said. "There is no question that Canada presents an easier environment for Chinese companies to acquire in."

Last year, Chinese companies spent $13.2 billion on deals in Brazil and $6.8 billion in Canada, compared with just $3 billion in the United States, Thomson Reuters data shows.

Such a low level of M&A between the world's two largest economies is likely a symptom of broader bilateral relations between the two countries and could have consequences on that relationship as well.

High-profile rejections of Chinese deals in the United States amid political opposition and national security concerns, as well as rejection of bids by U.S. companies in China, have made things worse in recent years.

Even when a Chinese company gets past all these hurdles, they have to overcome several procedural issues, ranging from the speed with which they could move to the certainty of closing when a deal is announced.

"It can range from simple blocking and tackling, such as how do you get two management teams together here in the U.S. quickly when visa issues may cause a six-week delay, to real issues and considerations," said Patrick Ramsey, head of Americas M&A at Bank of America Merrill Lynch. (BAC.N)

Howard Ellin, co-head of Skadden Arps' corporate transactions and M&A practices, added, "The regulatory path to approval or political path to approval in state-owned enterprises is complicated and not transparent in the way we are used to in our deals."

These hurdles mean that when Chinese buyers do participate in an auction they may need to pay a higher price to succeed, said Jeffrey Buckalew, Greenhill & Co's (GHL.N) head of North American corporate advisory.

"For them to be successful, because of the risks involved in dealing with them as a buyer, the price has to be higher," Buckalew said.

"Where it does affect deals that you don't see because it never gets announced that way is when you have a Chinese buyer -- which happened to us recently in a sale process -- and you choose to go with somebody else because you don't even want to deal with it," Buckalew said.

Still, in certain sectors the Chinese may be the obvious bidders and bankers said they then design the auction to make sure they can accommodate them.

"We have certainly included them in processes where they were an obvious potential buyer," Buckalew said.

These dealmakers also emphasized that deals with China are getting done despite these problems, such as CNOOC Ltd's (0883.HK) recent shale deals with Chesapeake Energy Corp. (CHK.N)

"We are all getting smarter as to how to get a deal done that makes sense with a Chinese entity, whether we are representing the Chinese entity or we are on the other side of it," Bank of America's Ramsey said.

(Reporting by Paritosh Bansal, editing by Matthew Lewis)