Hard on the heels of my recent blog entry on foreign takeovers of firms in China comes news today of another potential western-backed buy-out of a big Far East player. But just as I noted that there are key political dimensions to any overseas acquisition of Chinese business, this one will also only go ahead with the official sanction of China’s commerce ministry as well as that of company shareholders and market regulators.
By offering to buy 60% of Hsu Fu Chi, a confectionery and snack-maker, Nestle hopes to gain a major foothold in China’s potentially huge consumer market. In agreeing to pay $1.7bn for the stake, the Swiss-based multinational shows how highly it prizes greater exposure of its brands in the Far East. Chinese authorities’ rubber-stamping of the deal is not guaranteed, though. They have quashed earlier attempts by big western firms to buy into China’s consumer markets, such as in 2009 when blocking Coca-Cola’s efforts to acquire Huiyuan Juice Group.
I have mentioned before that regulatory pressure exerted by the authorities in China can lead to controversial action by companies dealing with foreign partners. But political interference is not at all confined to China when overseas control of key companies and markets is theatened. When various US ports came under the control of Dubai Ports World (DP World) in 2006, for example, the deal was eventually derailed after pressure was exerted by US law makers.
In the DP World case, major US port facilities were acquired as a result of the firm’s buyout of P&O, which was the world’s 4th biggest port operator at the time. US House of Representatives voted to pass a law forbidding transfer of ownership of these US assets and not long afterwards the firm agreed to sell them to a US-based investment company.
Western views of China's political involvement in commercial decision-making must be balanced by the recognition that their own states often protect their so-called strategic national interests. And while it can be argued that sea transport and distribution is of greater importance than the confectionery market, we have seen before that foreign takeovers in this field arouses what some see as strong protectionist urges.