Carlyle’s Half Way Home!!

Wednesday, November 15, 2006 9:07
Shanghai Daily, Asia Times, and Forbes are all reporting that Carlyle’s 50% acquisition of XMCG has been approved by local and provincial officials and only has one more red chop left to go at the national level before becoming “co-owners” of China’s largest construction equipment manufacturer.For those that have been following this story, it has become the poster child for perceived believe that the Chinese were turning against foreign investment. It is a story that has been mentioned dozens of time over the last 6 months, and at times, it looked like the deal was doomed.

The terms of the deal seemed cut and dry. Money for equity. 375 million USD for an 85% equity stake… and who could say no to that deal?

XMCG’s main rival Sany perhaps? The Chinese government? The Chinese people?

As it turned out, all of the above, and it was through this experience that China began to show that it was serious when it said that it would get more selective about the type and size of investment allowed.

Given Telstra’s 380 mullion USD acquisition of online real estate company Soufun.com was approved during the middle of this ordeal, Beijing was send a message that the construction equipment was an industry where investment was not wanted… or was it?

While I wish I could have been a fly on the wall, I was not, but as I discussed in a previous post, Carlyle made some huge errors: 1) Miscalculating the importance of XMCG; 2) It played the “anti-foreigner” card in the media; and 3) It thought that political pressure would bring the Chinese government around

So, 2 months after releasing the media hounds, and reducing their stake in XMCG, Carlyle is only one step away from closing their first major deal in China…. and at this point, I am wondering what will be the lessons learned through this case.

Questions running through my mind are:

  1. Does Carlyle believe its 50% will enable them to have a 50% voice at the boardroom table?
  2. How does Carlyle expect to catalyze change when it is not an industry player and the management of XMCG is full of lifers?
  3. What is it that Carlyle brings to XMCG? (Access to defense contracts, infrastructure contracts, or other large construction projects that come with being part of the Carlyle family?)
  4. Why did XMCG agree to an 85% buyout in the first place?
  5. How long will it take for Carlyle to up their investment to 85% (you know they will…)?
  6. What was Carlyle’s exit strategy?

the next few weeks are going to be interesting as the central committee internally debates this investment before warming up the red chop, and we will keep you up to date.

Feel free to write comments on the above questions in the meantime.

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One Response to “Carlyle’s Half Way Home!!”

  1. Blackstone Closes 3bn USD Deal with China. says:

    May 20th, 2007 at 9:04 pm

    […] I cannot think of a worse headline. their deals have stalled even after bringing in the big guns, reducing their stake, and agreeing to pay more for the reduce stake on a percentage basis. They played hardball.. and it […]

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