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State-owned Sinopec's long battle to acquire gas distributor China Gas has come to an end with a compromise that appears to offer everyone some upside. |
The proposed $2.15 billion takeover that Sinopec launched 10 months ago in conjunction with China Gas's rival, ENN Energy, never got regulatory approval. Meanwhile, China Gas's Hong Kong-listed shares rallied well above the price Sinopec and ENN were willing to pay-- they are now trading 18% above that level.
Beijing Enterprises, another state-owned entity, was among those that had bought in above the potential takeover price, representing another blockage to the deal.
That left Sinopec staring at the embarrassing possibility of failure on a relatively small, domestic deal. But an arrangement announced Monday lets the state-owned giant walk away without losing face. Sinopec and ENN dropped their bid. Separately, Sinopec and China Gas said they have signed a strategic cooperation agreement on natural-gas distribution. Sinopec says it also could buy China Gas stock in the future.
There may be less to this deal than meets the eye. Few details have been made public, and Sinopec's chairman says it won't contribute materially to earnings. China Gas shares were down 4.2% on Tuesday, and Sinopec fell 0.9% in Hong Kong.
The saga could, at least, be a positive step for the development of China's capital markets. The deal was regarded as the first time China had seen a hostile bid for a private company by a state-owned company. As such, it initially seemed unlikely China Gas could resist the attention of an exceptionally large and politically connected admirer.
But China Gas was able to attract other investors to buy large chunks of stock above the takeover price, replicating the defensive tactics of target companies in developed mergers-and-acquisitions markets.
Politics may have played a part in the outcome, though the markets had a role, too. China's state-owned giants will surely try to buy other smaller, listed businesses again. But they won't have it all their own way.
Source: The Wall Street Journal