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Industryweek 11146 060216kukajoergkoch
Industryweek 11146 060216kukajoergkoch
Industryweek 11146 060216kukajoergkoch
Industryweek 11146 060216kukajoergkoch
Industryweek 11146 060216kukajoergkoch

Has Midea-Kuka Deal Run Into a German Roadblock?

June 2, 2016
The German Foreign Trade Act allows the government to attach certain conditions to non-European companies purchasing chunks of German firms, which could delay the considerable transaction.

Midea Group Co. said its offer for Kuka AG is in the best interests of the German robot maker, as politicians in the European country explore ways to block the Chinese company’s deal while the government seeks other potential buyers and considers attaching conditions to the purchase.

Economy Minister Sigmar Gabriel is leading the charge to find a European suitor, saying that “there are efforts to create an alternative offer.” Chancellor Angela Merkel is “aware that the economy minister is studying other options” and views the presence of innovative companies in Germany as important, said Christiane Wirtz, a government spokeswoman.

The potential obstacle to the Chinese overseas deal comes less than a week after U.S. crane-maker Terex Corp.’s talks with suitor Zoomlion Heavy Industry Science and Technology Co. broke down after disagreement on terms. Another major deal fell through in April, when Anbang Insurance Group Co. backed out of its $14 billion takeover offer for Starwood Hotels & Resorts Worldwide Inc. Chinese companies are aggressively expanding overseas as growth slows at home and the government encourages some firms to go abroad.

Midea “reiterates the mutual benefits of the deal and that it is in the best interests of Kuka and all its employees and shareholders,” its external spokeswoman said via telephone Thursday, when asked about the German opposition. Its shares fell 1.3% to 22.56 yuan ($3.42) by the close of trading in Shenzhen, against the 1% rise in the Chinese city’s benchmark index.

Midea shares had gained 7% Wednesday, its first day of trading since announcing its offer May 18. The Guangdong province-based company has said Kuka would help upgrade its manufacturing lines.

Gabriel has been courting potential buyers that include ABB Ltd. and Siemens AG, according to a government official familiar with the matter, who asked not to be identified discussing private deliberations. The ministry is in favor of an ABB offer and doesn’t see a purchase by the Swiss company, which has a robotics unit, running into competition obstacles, the person said. Siemens was ultimately unwilling to offer a suitable price, the person said. Spokesmen at Siemens and ABB declined to comment.

The Economy Ministry is also looking at whether it could use a foreign trade law to give it a say in the deal, said another government official. The German Foreign Trade Act allows the government to attach conditions to the purchase of a stake of 25% or more in a German company by a non-European firm if it determines the deal would endanger public order or security.

Application of the foreign trade law could be limited as it is a means of last resort in an open market economy to safeguard critical national interests, said Frankfurt-based lawyer Jan Schaefer, a partner at King & Spalding.

“I doubt that the law will be a deal breaker but it could be a stumbling block in delaying the transaction,” Schaefer said in an e-mail. “Rather than limiting such acquisitions in Germany, the German politicians should lobby with the Chinese government to open the Chinese market for easier German acquisitions in China to level the playing field.”

Kuka shares fell as much as 0.7% to 106.9 euros ($119.56) in Frankfurt. They have gained 30% this year through Wednesday, valuing the company at 4.28 billion euros ($4.79 billion).

Are Fears Really Unfounded?

Midea, China’s biggest maker of home appliances, made its offer of 115 euros ($128.62) per Kuka share, valuing the supplier of automation equipment to Airbus Group SE, Volkswagen AG and Fiat Chrysler Automobiles NV at 4.6 billion euros ($5.14 billion). Midea already owns 13.5% indirectly and said it’s targeting a stake of at least 30%, though it doesn’t plan a full takeover. Kuka’s largest shareholders are Friedhelm Loh and Voith GmbH, who between them own almost a third of the company.

“We support mutually beneficial cooperation among companies from different countries based on market rules and we hope countries will provide a sound environment and conditions for such commercial activities,” China’s foreign ministry spokeswoman Hua Chunying said in a briefing in Beijing on Thursday.

“Commercial activities should not be politicized,” Hua said. She said she wasn’t aware of the specifics about the German opposition to the Midea deal.

Gabriel’s efforts follow a call earlier this week by European Union Digital Economy Commissioner Guenther Oettinger — a former German state politician — for a white knight from closer to home to buy Kuka and keep key knowledge within the region.

“A counter-bid can never be ruled out, especially given recent fears in Germany about a sell-out of German flagship robot technology,” Sven Weier, an analyst at UBS, said in a note to clients. “However, at this stage, it remains quite unclear to us who could bid and how such a bid would be structured.”

Kuka CEO Till Reuter has said he will look at any offer the company receives, taking into account all the company’s stakeholders including customers, investors and employees. A spokeswoman pointed to Reuter’s comments when contacted about the takeover speculation this week.

Germany’s BDI business lobby, which represents around 100,000 companies with 8 million workers, said fears of job and technology losses are often unfounded. Instead, German companies can benefit from improved market access in China.

“Based on our experience, the Chinese aren’t interested in breaking up companies” they invest in, Friedolin Strack, head of the BDI’s international markets department, said in an e-mail. “For distribution in China, entirely new channels open up when a large Chinese company supports its German subsidiary in marketing in China.”

Midea’s offer to raise its stake in Kuka is part of a record wave of Chinese investment in Europe. China National Chemical Corp., known as ChemChina, is seeking approval for a $43 billion takeover of Swiss seed company Syngenta AG in what would be the biggest acquisition by a Chinese firm. It also agreed to buy German machinery-maker KraussMaffei Group in January in a deal valued at $1 billion.

“We have not seen negative development of the suppliers in Europe — or in Germany — who have Chinese shareholders in their attitude toward us as customers,”  Daimler AG Chief Executive Officer Dieter Zetsche said when asked about Midea’s bid. “Therefore there is no proof that this would be a risk.”

By Bloomberg News, with assistance from Richard Weiss, Alice Baghdjian, Naomi Kresge, Rainer Buergin, Arne Delfs, Nicholas Wadhams and Ken Wills.

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