The Final Days of the Hummer Sale

Posted on March 19, 2010 by Bill Newman

 

 

February 24 brought the end of GM’s proposed sale of its Hummer business to Sichuan Tengzhong Heavy Industrial Machines Company of Sichuan, China, with GM’s direct announcement that the buyer “was unable to complete the acquisition of Hummer.” The deal was initially announced in June 2009 and was to have been completed by the end of January 2010. The sale would have resulted in the first Chinese-owned automobile business in North America. Hummer’s operations were to have remained in the United States. 

GM stated that it would work closely with Hummer employees, dealer and suppliers to wind down the business. It also stated that it would honor warranties and provide service and parts to owners.

What killed the deal? There were no definitive announcements and as a result various theories have been advanced. The general media speculation was that Sichuan Tengzhong was apparently not able to receive necessary approvals from Chinese regulatory authorities. Time Magazine reported that, according to Yale Zhang, a China market analyst for auto-industry consultants CSM Worldwide, "The purchase of this brand is not a match for China. The government's general policies about efficiency and environmental protection, and No. 2, about consolidation — it is all about these two very broad, general policies. This purchase does not match those." The environmental blog Ecosalon emphasized the ecological basis for the Chinese’s government’s refusal to approve the deal. 

More plausible is that insufficient financing was available. The New York Times reported that because the Chinese government had not approved the transaction, Chinese banks were unwilling to lend. As to western banks, the current nonfunctioning state of acquisition finance markets for mid-size deals meant that other bank financing was not available to Sichuan Tengzhong. 

On the day the deal collapsed, there also was a press report that a private equity fund was about to enter the transaction. The fund, newly formed and based in the Cayman Islands, had proposed to acquire a 20% stake in the Hummer business. 

Despite all of the other reports, the Motor Authority blog, ever hopeful, says that the real deadline is May 31 and that the deal is not yet over. That report is not likely to be reliable. To paraphrase General Douglas MacArthur, “old transactions don’t die; they just fade away.”

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Will CFIUS Review Inbound M&A Transaction to Acquire Hummer?

Posted on October 13, 2009 by Bill Newman

In a headline-grabbing inbound acquisition deal, General Motors Corp. and Sichuan Tengzhong Heavy Industrial Machinery have reportedly reached definite agreement on the terms of the sale of GM’s Hummer Brand by early 2010 for approximately $150 million. According to a Reuters report appearing in The New York Times, Tengzhong has begun to seek Chinese regulatory approval for its purchase of the Hummer brand, Hummer trademark and manufacturing expertise. The report surmises that three Chinese regulatory bodies – the Ministry of Commerce, the National Development and Reform Commission and the Ministry of Industry and Information Technology. In our post of last June 15, we noted that Chinese regulators could have a significant role in the purchase.

There also are questions as to what U.S. regulatory approvals may be required. Reuters reports that approvals from U.S. regulators are required, but doesn’t specify which regulators. Although far reduced in size from the original $500 million estimate, the $150 million price exceeds the minimum size for filing with the antitrust regulators in the Department of Justice and the Federal Trade Commission. There seem to be few tangible assets changing hands – no plants, no real estate, no equipment. The reports suggest that only intangibles are being bought and sold. Therefore, the key question becomes whether the parties have obligated themselves to make a voluntary filing with CFIUS. In posts earlier this year, we raised the question of whether sales of U.S.-based automotive businesses to offshore buyers would trigger review under the Foreign Investment and National Security Act of 2007 (FINSA). Review under that statute could interpose a 30-day review period plus an additional 45-day period if an investigation is warranted. The descriptions of the deal, structured as the purchase and sale of intellectual property whose value lies in the marketing of the product and certain manufacturing rights, suggests that the parties have taken reasonable steps to minimize those factors that could lead to an adverse regulatory outcome.

It even is possible that GM, Tengzhong and their advisors are so confident of their structure that they will elect not to make the filing with CFIUS which, after all, is voluntary. The deal apparently has provisions that will save 3,000 U.S. jobs through 2011. It may be unlikely that a U.S. regulatory body will risk adding those workers to the already sizeable portion of the workforce that is unemployed. Although there could be regulatory risk, it may not be high for GM. CFIUS could, however, have an interest in fully analyzing the ownership and business relationships of Tengzhong and its 20% partner, Suolang Duoji, to determine whether there could be control by the PRC government.

GM has not yet filed the definitive agreement with the Securities and Exchange Commission. Under SEC rules it has until later the week to file the agreement if it is “material” agreement. Once filed, a review of the agreement should disclose whether the parties will make their voluntary CFIUS filing. 

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Inbound Acquisition Deal Grabs Headlines

Posted on June 3, 2009 by Bill Newman

This morning's print and online media, including Dealbook, is covering GM's planned sale of its Hummer brand to China-based Sichuan Tengzhong Heavy Industrial Machinery Co., Ltd. for a price that is reported to be less than $500 million.  The business being sold does not include the military vehicle after which the Hummer is designed. Chinese news media also carried stories reporting the memorandum of understanding.

Sources reporting the planned sale included automotive blogs, including Kicking Tires and Autoblog.

This development for GM is an interesting follow up to our blog posted May 25 speculating whether sales of U.S. automotive businesses to non-U.S.buyers will trigger CFIUS review.  The article in today's Wall Street Journal reporting the transaction includes a chart that reviews the regulatory review record for major recent inbound deals originating in China. 

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