M&A regulation Chinese style: Restrict a merger, invest in the aftermath

M&A regulation Chinese style: Restrict a merger, invest in the aftermath

By Adam Pasick @adampasick

April 14, 2014

Mergers and acquisitions are supposedly all about synergy between the companies involved. It’s unusual to see it blossom between a company and an antitrust regulator, yet that’s exactly what seems to have happened in the case of the Chinese government and the Switzerland-based mining group Glencore-Xstrata.

The merger of Glencore and Xstrata created the world’s fourth-largest mining company and largest commodities trader when it was finalized last year. But as a condition of the deal, the firms had to secure the blessing of regulators in the major markets in which they operate, including China.

Before bestowing its approval, China’s Ministry of Commerce took an expansive view of its remit, insisting that the company sell its giant Las Bambas copper mine in Peru in order to gain approval for its merger. Today, after months of negotiations, the Las Bambas sale was finally sealed, and the buyer was none other than a consortium of state-owned Chinese firms led by China Minmetals, which agreed to pay at least $5.8 billion in cash for the mine. The price is at the higher end of most analysts’ estimates, who welcomed the cash windfall on Glencore Xstrata’s debt-heavy balance sheet.

The sale highlights how desperate China is to secure an uninterrupted inflow of metals and raw materials to fuel its economy. As the Financial Times noted, Minmetals was founded during the Western trade embargoes against China in the 1950s. The Las Bambas takeover is part of a resource security strategy that is designed to make sure a similar resource choke point never happens again, particularly with copper, since China consumes 40% of the world’s supply of the mineral.

Copper demand is currently in the doldrums (paywall), although Chinese imports have continued unabated since the metal is often stockpiled for use as loan collateral.

Not many developed economies would so blatantly combine their regulatory and commercial interests at home and abroad (other than France). Such are the benefits of China’s one-party system, where competition regulation and foreign trade policy are often one and the same.

About bambooinnovator
Kee Koon Boon (“KB”) is the co-founder and director of HERO Investment Management which provides specialized fund management and investment advisory services to the ARCHEA Asia HERO Innovators Fund (www.heroinnovator.com), the only Asian SMID-cap tech-focused fund in the industry. KB is an internationally featured investor rooted in the principles of value investing for over a decade as a fund manager and analyst in the Asian capital markets who started his career at a boutique hedge fund in Singapore where he was with the firm since 2002 and was also part of the core investment committee in significantly outperforming the index in the 10-year-plus-old flagship Asian fund. He was also the portfolio manager for Asia-Pacific equities at Korea’s largest mutual fund company. Prior to setting up the H.E.R.O. Innovators Fund, KB was the Chief Investment Officer & CEO of a Singapore Registered Fund Management Company (RFMC) where he is responsible for listed Asian equity investments. KB had taught accounting at the Singapore Management University (SMU) as a faculty member and also pioneered the 15-week course on Accounting Fraud in Asia as an official module at SMU. KB remains grateful and honored to be invited by Singapore’s financial regulator Monetary Authority of Singapore (MAS) to present to their top management team about implementing a world’s first fact-based forward-looking fraud detection framework to bring about benefits for the capital markets in Singapore and for the public and investment community. KB also served the community in sharing his insights in writing articles about value investing and corporate governance in the media that include Business Times, Straits Times, Jakarta Post, Manual of Ideas, Investopedia, TedXWallStreet. He had also presented in top investment, banking and finance conferences in America, Italy, Sydney, Cape Town, HK, China. He has trained CEOs, entrepreneurs, CFOs, management executives in business strategy & business model innovation in Singapore, HK and China.

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