Business Activities News
- M&A deals likely to increase sharply in China this year
Date: 19-Jan-2007 Sources: (Xinhua Online)
The Chinese market is likely to see more merger and acquisition (M&A) deals this year, a domestic consulting company said in a report.
The Zero2IPO company expects 2007 to see M&A cases in China worth more than 150 billion U.S. dollars, up more than 60 percent year on year.
In 2005, China reformed its split share structure, a system in which publicly-owned tradable shares co-existed with a large volume of state-owned non-tradable shares.
The system had been blamed for a four-year bear market on Chinese stock markets.
This diluted the shareholdings of principal shareholders, according to the Zero2IPO report.
Now, in about 450 to 500 listed companies, the principal shareholder holds less than 20 percent of the shares, making mergers and acquisitions easier.
Foreign investors now prefer accessing the Chinese market by taking over local companies rather than setting up foreign-funded firms, and industries such as IT, retail and cement could be the prime targets, it said.
A further element is the fact that Chinese companies are themselves consolidating.
The Government recently decided to cut the number of large state-owned enterprises directly controlled by the State-owned Assets and Administration Commission (SAAC) from 160 to 80.
The policy will open the door to more M&A deals among state-owned enterprises, according to Zero2IPO.
An increasing number of M&A deals in China have prompted the government and other authorities to promulgate new rules concerning the acquisition of domestic enterprises.
The government is also working on anti-monopoly legislation to curb risks inherent in M&A cases.
According to the new rules on the acquisition of Chinese enterprises by foreign investors, which took effect on September 8,2006, central authority approval is required in three cases.
The three cases are: the foreign bidder has a market share of over 20 percent and annual sales in China of over 1.5 billion yuan (190 million dollars); the market share of one of the parties to the deal will reach 25 percent after the acquisition; the foreign bidder has acquired more than 10 Chinese enterprises in one year.
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