SinosteelÆs $902 million acquisition of Midwest
Adviser to Sinosteel: J.P. Morgan
Adviser to Midwest: Morgan Stanley
Legal advisers: Deacons
Even in a year punctuated by China outbound M&A into a variety of target markets, SinosteelÆs A$1.36 billion ($902 million) takeover of Australian firm Midwest stands out as a pioneering deal. It was the first hostile takeover by a Chinese firm in Australia and the first hostile takeover by a state-owned enterprise. Further, Sinosteel emerged winner in a drawn-out competitive situation which tested both its mettle and that of its adviser.
In 2007 iron ore producer Midwest became the target of an unsolicited takeover offer by Murchison Metals, a mining and infrastructure firm. Midwest turned to Sinosteel, with whom it had a working relationship since 2005, to stave off the bid. Beijing-headquartered Sinosteel tabled an offer of A$5.60 per share to acquire shares in Midwest, acquired a 10% interest in the firm and fended off Murchison.
Sinosteel also embarked on negotiations with the Midwest management to acquire control of the firm. When management dragged its feet, Sinosteel took its offer directly to shareholders in March, offering investors a deal which was already approved by AustraliaÆs Foreign Investment Review Board. A month later, Sinosteel improved its bid and won the endorsement of Midwest management.
But Murchison resurfaced in May with an all-share reverse merger proposal, cannily structured so that Sinosteel would not be able to use its shareholding in Midwest to block the bid. SinosteelÆs subsequent decision not to engage in a bidding war, but hold its ground and launch a legal battle against Murchison, questioning the validity of some terms of the Murchison offer, was inspired. It created uncertainty in the minds of shareholders and made SinosteelÆs cash offer look even more attractive. Sinosteel went on to corner enough of MidwestÆs outstanding shares to effect a compulsory delisting.
The deal, which closed in September, was textbook M&A of the sort advisers dream about advising on. It required Sinosteel to react quickly and decisively, to plot its moves and to identify the weakness of its adversary. It also signalled how far Chinese firms are willing to go to secure natural resources. Hostile bids are always fraught with uncertainties and we cannot conclude that this deal will set off a flurry of such activity. But SinosteelÆs success will certainly inspire a few daring firms to think outside the box.
BEST CROSS-BORDER M&A DEAL
Daiichi SankyoÆs acquisition of Ranbaxy Laboratories
Adviser to Daiichi Sankyo: Nomura
Adviser to Ranbaxy Laboratories: Religare Capital Markets
Legal advisers: Jones Day, P&A, Vaish Associates
Japanese pharmaceutical companies, which are some of the most sophisticated and cash-rich companies in the world, started shopping for targets abroad last year to enrich their drug pipelines and counter the uncertain outlook for sales in Japan. But Daiichi SankyoÆs takeover of Indian generics firm Ranbaxy Laboratories at an enterprise value of $8.5 billion made an impact on various counts.
What made corporate India and M&A bankers sit up and take note was the target. The family members who owned a controlling stake in Ranbaxy and managed the business were third generation, and the grandchildren of the firmÆs founder.
If 2007 was the year advisers started aggressively marketing outbound M&A to Indian clients on the back of the Tata SteelÆs acquisition of Corus, the second half of 2008 was when they started thinking about which families in India could be willing to cash out of the businesses they inherited.
The timing was perfect. The credit crunch was making it difficult for Indian firms to pursue outbound M&A given their reliance on external sources of funding to close their deals. And uncertainties surrounding a global recession were making owners feel vulnerable about their businesses and their ability to weather a downturn.
We reckon this is the India deal this year that has spawned the maximum copycat attempts and will continue to do so.
BEST DOMESTIC M&A DEAL
EugeneÆs $2.12 billion acquisition of Hi-mart
Adviser to Eugene: Citi
Adviser to Affinity: Goldman Sachs
Legal advisers: Lee & Ko, Yulchon
In an environment hostile to private equity activities, still darkened by Lone StarÆs purchase of Korea Exchange Bank in 2003, Korean public opinion can quickly turn against private equity firms making what it perceives as excessive profits. So, full marks to Affinity Equity Partners for its profitable but quiet divestment of its holding in KoreaÆs biggest consumer electronics specialty retailer at the start of the year.
Affinity, a Hong Kong-based private equity firm, sold Hi-mart to Eugene Corporation for W1.95 trillion ($2.12 billion), valuing the company at 11.6 times 2007 Ebitda. It was the largest M&A transaction in the Asian consumer retail sector since 1994 û and the biggest ever in KoreaÆs consumer retail sector.
Eugene beat more than 10 competing bidders for the 100% stake in Hi-mart, which had been held by Affinity since April 2005, by offering the firm a ôclean exitö rather than the highest price. By taking a lower bid, Affinity averted potential criticism and avoided political sanction. And by guaranteeing the jobs of Hi-martÆs employees, Eugene, a conglomerate with interests spanning finance, construction and confectionary, kept the labour unions on side.
BEST PRIVATE EQUITY BUYOUT, BEST LEVERAGED FINANCING
KKRÆs $575 million acquisition of Unisteel and acquisition finance facility
Advisers to KKR: Deutsche Bank, Morgan Stanley
Lead arrangers: DBS, Deutsche Bank, GE Commercial Finance, ING, Morgan Stanley
Adviser to Unisteel: Macquarie
Legal advisers: Allen & Gledhill, Lee & Lee, Simpson Thacher & Bartlett, White & Case, WongPartnership
Private equity firm Kohlberg Kravis Roberts & Co (KKR) emerged the winner in an auction for Singapore-listed Unisteel Technology in June with a bid that valued the target at S$785 million ($575 million). Unisteel is a precision engineering company, which listed on the Singapore Exchange in 2000.
The sale of Unisteel to KKR was announced at a time when credit markets were already dislocated. The leads embarked on a syndication knowing there were competing deals in the market and, further, that market conditions were deteriorating. And they were successful in finding long-tenor, cost-effective financing which met the requirements of KKR.
The deal established that as long as they are transacted at reasonable multiples, Asian markets remain open for leveraged buyouts. The $280 million acquisition finance facility attracted a consortium of nine participating banks.
This was one of the deals which almost everyone we spoke to had an opinion about. Some of the more honest bankers conceded this was the deal they missed this year. Others acknowledged that their concerns about a successful closure were misplaced. And in awarding the deal two of our key awards, we recognise that the banks who advised on it made the right call with regard to it being doable and then went on to successfully execute.
BEST PRIVATE EQUITY DEAL, NON-BUYOUT
BlackstoneÆs $600 million acquisition of a 20% stake in Bluestar
Adviser to Blackstone: Merrill Lynch
Adviser to China National Bluestar Corp: UBS
Legal advisers: Simpson Thacher & Bartlett, Skadden
Financial sponsors have long been attracted by the growth opportunity in the worldÆs most populous country. But China has proven a difficult market. Many assets are termed strategic and in some instances private equity firms have ended up with investments which have given them limited say in decision-making thus little opportunity to add value. For buyout firms specifically, itÆs a challenge to find deals which give them exposure to the country and that are doable.
Late last year, US private equity firm Blackstone paid $600 million for a 20% ownership stake and proportionate board representation in specialty chemicals company China National Bluestar, a wholly-owned subsidiary of ChemChina.
The complexity of the deal was high as Bluestar has three listed units: Blue Star Cleaner, Shenyang Chemical Industry and Blue Star New Chemical Material. It also has a number of unlisted units. The advisers had to structure an investment which met all guidelines.
But, importantly, the structure also had to find favour with regulators. Securing requisite clearances has been challenging for private equity investments in China especially. The Blackstone investment successfully closed in October this year.
Blackstone views the investment as a partnership and is actively seeking ways to create value for itself and its partner. This deal could end up redefining how some buyout funds approach their China investments. And create a new kind of partnership.
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