A Tale of Two Deals: Carlyle and Telstra

Sunday, March 25, 2007 9:08

For nearly 9 months now (see original post here), the Carlyle deal has been in what seemed to be a never ending holding pattern over the skies of Beijing’s regulatory bodies.


When it was initially announced that Carlyle would take 85% of XMCG, the nationalistic funny bone of China got chimed. The CEO of XMCG’s largest competitor, Sany, leveraged his blog to garner support, the regulatory bodes in Beijing balked, and the press got their headlines.

The rest as the say is history. Even though Carlyle did agree this week to reduce their share expectations once again to 45% (second offer was 50%).

TelstraHowever, at about the same as all this was occurring, Telstra closed a deal for 51% of Soufun.com, a Chinese real estate portal. Unlike the Carlyle deal though, this deal got the green light almost automatically.

And here are a few of the reasons why:

1) Telstra was able to package a deal that included more that money.

  • It was a leader in the industry (online communications) and it was offering to bring Soufun to the international stage
  • Carlyle, is not a leader in the construction equipment industry and could offer little industry specific technology or knowhow to take XCMG to the next level

2) Soufun.com was in an industry not considered to be a crown jewel

  • XCMG was an industry leader that was beginning to make headway internationally in third markets (Africa, Latin America, Eastern Europe, and Mid East).
  • Soufun was a platform well behind other international MLS platforms, however, due to its large base of users, it was a successful Chinese platform.

3) The Soufun deal was executed quietly

In the end, Telstra’s positioning of Soufun won it immediate acceptance in China. It was not seen as hot money flowing into the market, and it was not seen as a foreign investor trying to take a crown jewel.

As I mentioned months ago, Carlyle underestimated this deal and those involved in it. With Chinese branded construction equipment finding a market in the developing nations, this is an industry that the Chinese are proud of and will protect. To think that throwing 285 million USD at XMCG for 85% of the company (read future profits) was a catastrophic mistake.

Now, instead of moving onto the next deal, Carlyle is offering more per share for fewer shares, and if it were not for face (funny how quickly a western firm picks that up), I am sure they would have walked from the deal…

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4 Responses to “A Tale of Two Deals: Carlyle and Telstra”

  1. Absurdfool says:

    March 26th, 2007 at 9:34 pm

    I dont think Carlyle is going to strike that deal even for 45%. Nationalistic rage fueled by local academia is one, intraparty conflict which triggered by the former is another. I think it won’t be resolved before the opening of the 17th Party Congress later this year. As a wild guess, PE will be higher than it is now, even if the deal could be closed with an international partner(s), not necessarily Carlyle. By the way the CEO of XMCG is too eager to lean on Carlyle, for whatever reasons, which isn’t good under the context of Chinese conventional thinking. It isn’t easy for him to reach the other side of the shore in trouble water. πŸ˜‰

  2. Absurdfool says:

    March 26th, 2007 at 9:42 pm

    One last thought, certain national institutions, financial or non-financial, with certain princelings’ interests on might try to get themselves involved in one way or another, as part of the struggle for material gains and/or political power. It’s a conspiracy approach to the problem of the deal. πŸ™‚

  3. rbrubaker says:

    March 27th, 2007 at 12:55 am


    You give readers a lot of grey area to play with (I hope others take advantage).

    This whole deal I think is about face, and the size of egos found in those circles. At 45%, Carlyle is just throwing money away, and I am pretty sure they know that. If there is some expectation that the 45% will grow to 51%.. and then to the original 85%, then they are in need of a new advisory team.

    I would agree that PE amounts will grow, and it is really interesting to hear about some of the deals being considered, and it will be equally interesting to read the next versions of Mr. China as they pay their tuition.

    anyone notice that China Vest, the first PE/ VC in China is now focused more on advisory than executing their own funds?

  4. Archive » FDI: It’s a Big Deal| China Business Blog says:

    March 29th, 2007 at 1:52 am

    […] Another perspective on this issue (citing Carlyle and Telstra deals), has been written at All Roads Lead to China, and is well worth a read. […]