China Buying up American Companies at Alarming Rate

Barriers to Sale of U.S. Corporation

The sale of various U.S. entities to the Chinese is troubling to many people, including U.S. regulators.

This was dramatically on display recently when the Chicago Stock Exchange announced that a Chinese investor group had agreed to acquire it, providing the buyer entry into the very competitive U.S. equity market. While the overall effect on U.S. financial markets will be quite moderate, it is frightening to think of a Chinese company embeded into the American economy in such an intimate way.

The deal is troubling because Chinese companies have a long history of lapses in business ethics, and this would put a Chinese company in the middle of the U.S. economic machine.  There remain political issues to be dealt with, and the regulatory challenges are still pending, but the offer seems to have found a positive response.

Chongqing Casin Enterprise Group has signed a definitive agreement to acquire the company, according to a statement Friday. The deal values the Chicago Stock Exchange at less than $100 million, according to a person familiar with the matter, who asked to not be identified because the terms weren’t disclosed publicly. The exchange expects the deal to close in the second half of the year, though that will require regulatory approval.

“We’re a good fit. Our strategy is something they like and is consistent with theirs,” Chicago Stock Exchange Chief Executive Officer John Kerin said in a phone interview. “We provide technology and we’re a standalone, full-service exchange that they can grow in a manner that suits their needs.”

 The acquisition would be the first of a U.S. exchange by a Chinese company. The 134-year-old bourse only handles about 0.5 percent of U.S. stock trading, but a deal gives a buyer a beachhead in the $22 trillion American equity market. There’s also the potential for growth given that regulations require trades to be routed to whichever exchange has the best price for a stock at a given moment.

In other instances, the concern goes beyond economic integration or disruption and has to do with strategic industries, particularly ones that may impact our military readiness.

Zoomlion Heavy Industry, a Chinese government owned heavy equipment supplier to the People’s Liberation Army, recently issued an unsolicited offer to buy Terex Corporation. The proposal is being questioned by U.S. representatives and should be rejected out of hand. The potential for the Chinese to own a U.S. company that supplies critical military equipment and then stopping delivery or even sabotaging the products is just too great a risk to take. And certainly the problem of spying by embedding stealth devices or equipment into products that would be made by the Chinese company would be too great a risk to allow.

GOP Rep. Duncan Hunter of California wrote a letter Wednesday to Treasury Department Secretary Jacob Lew, urging him to look into the details of the potential transaction.

“It has come to my attention that Terex Corporation, an American Company that manufactures heavy equipment, including cranes for the Army, Navy and other government agencies, has received an unsolicited takeover bid,” he wrote, adding, “the fact that a leading PLA supplier is seeking to purchase an American company that provides critical infrastructure equipment to a number of government agencies, including the Department of Defense and the Department of Homeland Security, demands that the agreement undergo thorough scrutiny if it does materialize.”

In a remarkable display of confidence, Zoomlion stated that it was sure that its bid would sail past the regulatory approval process, which is exactly what sparked concern from Hunter, who wants the Committee on Foreign Investment in the United States to closely examine the deal, as the committee has the authority to block the bid. Jacob Lew sits as chair of the committee.

These acquisitions may still encounter opposition in the U.S., and it is a difficult balancing act pitting government control against the freedom for companies to determine their own destiny. That seems appropriate, but the hope is that any opposition to mergers and acquisitions would be determined by concerns for U.S. security and not a congressional effort to exercise undue influence over a company for ulterior motives.

Forty-five members of Congress this week signed a letter to the Treasury Department's Committee on Foreign Investment in the US, or CFIUS, urging it to conduct a “full and rigorous investigation” of the Chicago Stock Exchange acquisition.

“This proposed acquisition would be the first time a Chinese-owned, possibly state-influenced, firm maintained direct access into the $22 trillion US equity marketplace,” the letter reads.

“While it is unclear the level of influence the state holds over CCEG, the firm is involved in a number of important Chinese sectors that would likely require close ties to the state.”

CFIUS is meant to vet deals for any national-security issues. It recently prevented the $3.3 billion sale of Philips' lighting business to a group of buyers in Asia, but its reasons for blocking that deal weren't disclosed.

Also this week, California-based Fairchild Semiconductor refused an offer from the state-backed China Resources and Hua Capital, the Financial Times reported.

They bid $2.6 billion for the company, but Fairchild turned it down, citing concerns about US regulators, and accepted a lower bid from a US-based rival.

Not all Chinese companies bidding for U.S. operations are state-owned, but all of them need the backing and approval of the Chinese government in order to secure the foreign exchange to pay for the acquisitions. It appears, however, that the Chinese government is encouraging these deals to go forward, and that is reason enough for U.S. citizens and government officials to be concerned.




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