|
 Affymetrix's CEO Frank Witney called Zhou, a former Affymetrix
executive who had partnered with Shanghai government-backed
investment firm SummitView Capital on his offer. Witney gave him
five days to put the full purchase price and the breakup fee that
would be owed Thermo Fisher in an escrow account.
Suitors of U.S. companies don't typically face such demands. But
Affymetrix's board of directors decided that, because Zhou's
consortium had no significant U.S. assets, the company would have
little recourse if the deal fell through.
Zhou's investment bankers responded that only the consortium's
break-up fee of $100 million could be escrowed, and that would take
weeks. Affymetrix decided to stick with Thermo Fisher.
The deliberations, described in regulatory filings, underscore the
challenges many Chinese buyers face in convincing U.S. companies to
make a deal, especially when competing against a U.S. company.
Traditionally, the biggest hurdle has been the Committee on Foreign
Investment in the United States (CFIUS), a government panel that
scrutinizes deals for national security threats.
But as Chinese acquisitions picked up this year, U.S. dealmakers
also are paying attention to financing and regulatory risk from
China.
The biggest illustration of that risk was China-based Anbang
Insurance Group Co's surprise withdrawal last month of its $14
billion bid for Starwood Hotels & Resorts Worldwide Inc <HOT.N>,
which had trumped a rival offer from Marriott International Inc.
U.S. companies want to make sure that Chinese suitors have approval
of key Chinese agencies, such as the ministry of commerce (MOFCOM),
and that financing is reliable.
"If the buyer faces uncertainty over their financing or approval
from MOFCOM, their bid won’t be competitive without a substantial
reverse break-up fee," said Robert Profusek, head of mergers and
acquisitions at law firm Jones Day.
When Chinese aviation and shipping conglomerate HNA Group clinched a
deal in February to buy U.S. electronics distributor Ingram Micro
Inc <IM.N> for about $6 billion, it agreed to deposit $400 million
in an escrow account payable to Ingram Micro should the deal fail to
receive regulatory or antitrust approval.
This "reverse termination" fee of 6.6 percent of the deal's value
illustrates the higher reassurance demands for Chinese buyers. By
comparison, U.S. acquirers typically offer about 3 percent.
COMPETING OFFERS
When Chinese suitors attempt to acquire U.S. companies that have
competing offers, it can be difficult to get them to abandon a
pending agreement.
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For example, Chinese crane maker Zoomlion Heavy Industry Science and
Technology Co has spent six months trying to convince U.S. peer
Terex Corp to abandon its merger agreement with Finland's
Konecranes for its bid, which now exceeds $3.4 billion.
Still, there is a logic to moving in on pending deals, dealmakers
say. Some Chinese buyers, lacking the resources and confidence to
make their own offers, piggyback on diligence performed by others.
When negotiating in a less competitive environment, Chinese
companies have driven hard bargains. Richard Handler, CEO of
investment bank Jefferies LLC, which has advised 10 U.S. companies
in sales to Chinese buyers totaling $6 billion, said in an interview
his investment bankers and clients have found Chinese buyers to be
"tough negotiators."
When a Chinese consortium led by ink cartridge chip maker Apex
Technology Co Ltd reached a deal last week to buy Lexmark
International Inc for $3.6 billion, it secured it with a
termination fee of $150 million - 4 percent of the deal's value -
through a letter of credit from the New York branch of Bank of
China, rather than an escrow.
Lexmark had been exploring a sale for more than six months and was
unhappy with previous acquisition offers, said sources close to the
company who spoke on condition of anonymity. So, it was in a weaker
negotiating position than U.S. companies demanding full escrow.
There is little evidence Chinese acquirers are paying more on
average. Thomson Reuters has tracked 66 deals involving U.S.
acquirers and buyers this year. The average ratio of deal value to
12-month earnings before interest, tax, depreciation and
amortization on those deals was 11.3. For six Chinese purchases, it
was 9.9.
It can be easier for private equity firms than publicly traded
companies to make deals with Chinese buyers because they don't face
the threat of shareholder lawsuits if things go wrong.
Some private equity firms have sought to take advantage by acting as
a "bridge" between public U.S. companies and Chinese acquirers.
Anbang, for example, agreed to acquire Strategic Hotels & Resorts
Inc from Blackstone Group LP for about $6.5 billion in March, three
months after Blackstone took it private for $6 billion.
(Reporting by Greg Roumeliotis and Mike Stone in New York; Editing
by Lisa Girion)
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