China Steps Up Buying In U.S.

By Sharon Terlep | The Wall Street Journal – Fri, Feb 8, 2013 10:57 PM EST

The made-in-China label isn't such a deal breaker anymore.

After being burned by a series of high-profile failures, Chinese companies are learning to navigate the delicate political and regulatory landscape for takeovers in the U.S.

Major U.S. companies remain essentially unattainable to Chinese buyers. So are many firms that can be tied to national security or critical technologies. Still, Chinese firms are stepping up their investments in the U.S. by targeting smaller companies, going after minority stakes and avoiding the most sensitive acquisition targets.

China hasn't given up on big deals. The Committee on Foreign Investment in the U.S., a government group that reviews foreign acquisitions, is expected to decide in coming weeks whether to approve two multibillion-dollar deals by Chinese firms. A Cfius spokeswoman declined to comment.

The deals getting the green light so far are smaller. Last week, U.S. regulators approved the Chinese acquisition of a U.S. battery maker despite political resistance and an initially icy reception. Wanxiang America Corp., a unit of China's Wanxiang Group, is paying $257 million to buy A123 Systems, a U.S. government-backed maker of lithium-ion batteries, after an early attempt at a purchase collapsed.

"You just need to understand the rules, follow the rules, be very transparent and let them make the decision," says Pin Ni, president of Wanxiang America, who started the U.S. offshoot out of a home office in Chicago.

Last year, Chinese buyers agreed to spend more than $10 billion in 46 deals to acquire U.S. companies or stakes in U.S. firms, according to Dealogic. The volume was higher than the Chinese total from 2009 through 2011 combined. The tally included the sale of Kansas City, Mo.-based movie-theater chain AMC Entertainment Holdings to Wanda Group for $700 million.

The U.S. still trails Canada, where Chinese firms announced $23 billion worth of deals for Canadian companies or stakes last year. The total includes the pending $15.1 billion acquisition of Canadian oil-sands operator Nexen Inc. by Cnooc Ltd., the Chinese state energy giant.

The Nexen deal requires U.S. approval, since Nexen owns significant assets scattered across the U.S. coast of the Gulf of Mexico. Last month, Nexen and Cnooc extended the deadline to complete the deal to March 2 from Jan. 31 to allow Cfius time to deliberate. Authorities in Canada, the U.K., European Union and China already have approved the takeover.

Most of last year's U.S.-China deals involved small companies or the purchase of minority stakes. Many bigger takeovers get ruled out by potential Chinese bidders because they don't think the transactions will be approved, say bankers and lawyers who advise the companies on deals.

In a 2005 deal that became a symbol of anti-Chinese sentiment, Cnooc abandoned its $18.5 billion attempt to buy U.S. oil producer Unocal Corp. amid what Cnooc called "unprecedented political opposition." Congress at the time inserted a provision into an energy bill that would have delayed the takeover for months. Unocal was later acquired by Chevron Corp.

Some big Chinese acquisitions still are being stymied.

Superior Aviation Beijing Co. abandoned in October its $1.79 billion bid to buy the corporate-jet and propeller-plane operations of Hawker Beechcraft Inc. because it was too complicated to separate those businesses from the Wichita, Kan., company's defense business, which would have been off limits, people familiar with the deal said at the time.

A congressional report published in October warned U.S. business against working with Chinese telecommunications firms Huawei Technologies Co. and ZTE Corp., saying their equipment could become a vehicle for Chinese spying in the U.S. Both companies have rejected the allegations, and Huawei called the findings politically motivated.

To avoid clashing with U.S. regulators, many Chinese companies are going after investments of less than $500 million, focusing mostly on closely held companies. Chinese firms sometimes aim for joint ventures or less-formal partnerships rather than all-out acquisitions.

But Chinese firms are getting more ambitious. Cfius signed off last month on the $118 million takeover of Complete Genomics Inc., a Mountain View, Calif., DNA sequencer by China's BGI-Shenzhen. That was the first acquisition of a publicly traded U.S. company by a Chinese firm.

A123 Systems was an especially sensitive deal because the Waltham, Mass., company got nearly $250 million in grants from the Department of Energy in 2009 to build a factory in Michigan. A123 filed for Chapter 11 bankruptcy protection in October, but Wanxiang America's first try at buying the battery maker flopped because of regulatory concerns.

On Wanxiang's second try, more than two dozen members of Congress wrote to Cfius to urge careful scrutiny of the deal. They argued that taxpayer-funded technology would land in the hands of a Chinese buyer.

To salvage the acquisition, Wanxiang agreed to sell off A123's business that sells batteries to the government while keeping the unit that sells commercial batteries. The Chinese company has said it intends to keep the Michigan factory in operation.

The Chinese company did extensive legwork to size up parts of the business that could be sensitive to U.S. officials and hired U.S.-based law firm Sidley Austin LLP to help manage the process, Mr. Pin says.

The biggest China-U.S. deal announced last year still needs approval from U.S. regulators. American International Group Inc. wants to sell up to 80.1% of its aircraft leasing business, International Lease Finance Corp., to a consortium of Chinese financial-services firms for $4.23 billion. Anticipating potential U.S. regulatory hurdles because of the deal's size, the consortium hired U.S.-based lawyers, a New York public relations firm and structured the deal in two parts. In addition to the initial stake, the group has the option to buy another 9.9% later.