Hard to Swallow

For Asian companies planning to make acquisitions in Europe or the United States, securing the deal may require more than the highest bid.

Right this minute, chances are good that somebody in Hollywood is writing
a screenplay about an
evil Asian corporation that will stop at nothing to take over a wholesome
American company.
You already know what this movie will be like. There will be a villainous
CEO, probably with a white
cat and a Chinese accent, henchmen in big black cars, an Irish-American
cop, a fast-kicking
Asian woman who won’t make it to the last reel, and a blonde American
woman who will.

What does this scenario have to do with Asian corporate
acquisitions in the West? Quite a bit, as it happens. Experts say
that economic reality — the kind of reality that business people
work in — often has surprisingly little to do with the political
realities
that determine whether an acquisition is approved. And those
political realities are often driven more by the kind of vague fear
that sells movie tickets than dispassionate economic calculation.

“If an Asian company or fund goes in and just thinks it can win
the battle for a company or an asset on economic grounds or business
grounds, it is bound to lose,” says Hans Kribbe, a former European
Union staffer whose posts included the offices of the competition
commissioner and internal market and taxation commissioner,
and currently an account director for GPlus Europe, a lobbying
and public relations firm.

Barriers to foreign acquirers — particularly those from Asia,
Russia,
and the Middle East — are starting to rise in the West. Anxious
about economic and military competition from China, the U.S.
Congress is turning its attention to foreign acquisitions in areas such
as natural resources, ports, and technology. In the EU, politicians
are considering whether to draw up a list of “strategic” industries,
requiring foreign buyers to seek government approval for acquisitions
in those areas.

This is bad timing for Asian companies, since the obstacles
are appearing just when many are shopping abroad for acquisitions.
Sovereign wealth funds such those maintained by Singapore
and Malaysia have raised large sums, and China recently
launched its own US$200 billion fund. Overseas purchases are
also surging and experts predict even more deals in years to
come. For just the first 10 months of 2007, for instance, the total
value of deals announced in the U.S. by Asian acquirers totaled
US$33 billion, up from US$16 billion for all of 2006. Deals bound
for Europe have also been on the upswing over the past few years
(see “Dealmakers on the Rise” at the end of this article).

For companies basing their expansion plans on buying into
Western markets — and many are — the challenge is by no means
insurmountable. But, say M&A experts, the increasingly chilly
environment will require a new degree of political sophistication
and public relations savvy.

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