Yuan it bad

M&A with Chinese characteristics comes up short

Chinese companies on a global shopping spree are finding their money isn't always welcome. These faraway buyers bring unpredictable risks that can only be partly papered over by the higher premiums they're willing to pay.

Fairchild Semiconductor on Tuesday rebuffed a takeover approach from China Resources Microelectronics and Hua Capital, saying it didn't constitute a "superior proposal" to one from ON Semiconductor. Yet China Resources was offering 8.5 per cent more in cash, a $200-million break fee and a $72-million inducement to unwind the previously agreed deal.

The decision speaks volumes about its assessment of a potential rejection by the Committee on Foreign Investment in the United States (CFIUS), the opaque US Treasury agency that considers national security. To the point, Philips last month abandoned a plan to sell its Lumileds arm to a Chinese investment fund because of "unspecified concerns" raised by CFIUS. In that context, it was probably rational for Fairchild to apply a discount to the offer from China Resources that more than offset the sweeteners it proffered.

It also explains the way investors in Terex, which makes forklifts, are treating a takeover from Zoomlion. The target's stock is trading some 28 per cent lower than the $30 on offer from the Beijing-backed maker of heavy equipment. Terex's board has been unmoved by Zoomlion's willingness to shell out 40 per cent more than the market's assessment of a previously agreed merger with Finland's Konecranes. It's especially curious considering less than two per cent of Terex's revenue is linked to North American port crane equipment, which J P Morgan analysts say would be a stretch to call critical infrastructure.

American regulators aren't the only quixotic actors to consider. Fosun, which fancies itself China's Berkshire Hathaway, on Wednesday terminated plans to acquire Israeli insurer Phoenix Holdings. Failure to meet "certain conditions" was the only reason given in a statement signed by Chairman Guo Guangchang, the tycoon who mysteriously went missing in December. Chinese authorities had detained him in a corruption investigation.

For deal-makers who seemingly can craft a term sheet that compensates for pretty much any risk, there's no easy calculus when it comes to Chinese suitors.