Sichuan Tengzhong Heavy Industrial Machinery and General Motors yesterday confirmed that the deal for the Chinese company to buy Hummer has been aborted.
Tengzhong said in a press statement that it had been unable to obtain regulatory approvals from Chinese authorities within the deal timeframe and that while it "is disappointed that the transaction cannot be further pursued, [it] respects the outcome".
Chinese media reported that Yao Jian, spokesperson for China's Ministry of Commerce, said at a briefing that Tengzhong could not provide regulators with a reasonable purchase plan, information about its investment plans and fundraising plans and further that the Chinese government is seeking to encourage renewable, green and environmentally friendly energy consumption.
The rejection is largely product specific, said Yin Guo Hui, a Beijing-based analyst at Bank of Communications International, citing the petrol-guzzling reputation of the Hummer relative to other brands. "The main reason is that Hummer is energy inefficient," he said.
GM said it would now proceed to wind down the Hummer business, although Hummer warranties would be honoured and service and spare parts would continue to be provided.
In October, Tengzhong signed an agreement to buy the Hummer brand, trademark and trade names, specific intellectual property (IP) license rights necessary for the manufacturing of Hummer vehicles and take on the existing agreements related to Hummer's dealer network from GM. Neither buyer nor seller disclosed how much Tengzhong was paying but specialists placed the deal size at $150 million. The deal also envisaged Tengzhong entering a contract with GM for vehicle manufacturing, key components and business services until June 2011. The manufacturing deal secured more than 3,000 jobs in the US related to the sale and manufacturing of Hummer vehicles.
Tengzhong is a Sichuan-based privately owned engineering company that makes special-use vehicles, road and bridge construction equipment and construction and energy industry equipment. It planned to buy Hummer through an investment vehicle, in which Tengzhong owned 80% and Suolang Duoji, a China-based private entrepreneur, the remaining 20%.
Tengzhong and GM had been trying to iron out details of a deal since the middle of last year. As soon as media got whiff of the deal, it started attracting criticism in China. Doubts were raised about whether Tengzhong would be able to manage an automobile brand and questions were asked about why a Chinese company was buying a fuel-inefficient and low-technology brand at a time when China is trying to move towards more environmentally friendly vehicles.
More recently, it was reported that Tengzhong was having a hard time raising bank funding for the deal, in the context of a wider policy decision that Chinese banks should be discouraged from funding M&A. But Yin disagrees. "This is not about the price -- money is never an issue for Chinese companies," he said.
Yin is also confident that the rejection will not deter other Chinese automobile firms from pursuing overseas acquisitions and referred to the support that Geely Automotive got for its takeover of the Volvo brand last year.
Tenghzhong was being advised by Credit Suisse with legal advice from Shearman & Sterling. Citi is the financial advisor to GM.