Wednesday, June 22, 2005

Chinese Investors Overpaying for Struggling American Companies

From Slate: The China PriceWhy - Why Chinese investors are overpaying for struggling American companies.

"Haier, (...), is a strategic buyer. Strategic buyers look beyond cash flow and hard assets. Rather, they consider how all the target's assets—everything from its cash on hand to its brand name—can further its core strategy. Maytag Corporation's intangible assets—its brand, its management, its century of washing-machine-making experience, and distribution relationships—are what Haier finds most appealing. Potential American strategic buyers, such as, say, Whirlpool, might view Maytag's assets as irredeemably damaged and wasting. But for a Chinese firm like Haier, even Maytag's tarnished good name is a vast improvement over what it has. It can take decades and tons of money to build name recognition among U.S. consumers. Now Haier can buy it in a matter of weeks. Sure, Haier will have to pay a premium (and perhaps a big break-up fee). But so what?

The Maytag bid resembles the recent sale of IBM's PC unit. Competition had run the unit into the ground. Who would want to buy what was becoming a marginal player in the PC industry? Not Dell or Hewlett-Packard. They had already crushed IBM's PC business, and they had nothing to gain by acquiring the IBM brand name. But Chinese computer maker Lenovo Group, an ambitious company with no name recognition in the United States, certainly did. It leapt at the opportunity to acquire the IBM PC mark, as well as its American management team, for $1.75 billion."

Read more:
China's Haier bids $1.28 bln for Maytag

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