The Final Days of the Hummer Sale
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.”
