Tengzhong/Hummer: will they or won't they?
November 02, 2009 | BY
clpstaff &clp articles &When Sichuan province-based truck manufacturer Tengzhong first revealed its plans to acquire the Hummer brand from General Motors, there was widespread…
When Sichuan province-based truck manufacturer Tengzhong first revealed its plans to acquire the Hummer brand from General Motors, there was widespread incredulity in the market. And it seemed that the Chinese regulators shared the feeling.
But the companies have not given up. On October 9, it was reported that GM had completed the agreement with Sichuan Tengzhong; three days later, Reuters reported that China's Ministry of Commerce (Mofcom) had not yet received a formal application, but Sichuan Tengzhong was still “talking to the regulators” and hoped to close the deal by the end of the year, or early in 2010.
Soon after Tengzhong and GM agreed the sale of Hummer, back in July 2009, it became apparent that the National Development and Reform Commission (NDRC), one of the other regulators responsible for approving many outbound M&A deals, did not approve of the transaction (although Mofcom was apparently more supportive). The Commission was quoted in the media as saying the new business was not a good fit for Sichuan Tengzhong and that the company lacked the necessary expertise.
Although no formal application had been made to Mofcom at that stage, counsel working on the transaction confirmed to CLP in July that the Chinese company had conducted informal discussions. The fact that the deal is not yet dead seems to highlight the importance of building good relationships with the regulators.
There is another aspect of the companies' approach to the deal which may be helping to keep the deal afloat – Tengzhong's plans to keep much of Hummer's senior management and operational team in place, as well as to maintain its existing dealership network.
This approach is likely to please the regulators, according to lawyers with experience of seeing through Chinese outbound deals. In an earlier China Law & Practice article, specialists advised that allowing senior management and key staff to remain in the same position after the acquisition will almost certainly help smooth the deal.
The Hummer/Tengzhong deal is being watched closely, both in China and the US, where GM is based. Whatever happens, the results will provide further guidance to both Chinese companies and those foreign companies who find themselves targetted by PRC companies.
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