Fight for state-support to buy HP unit
Beijing
THE bidding for a controlling stake in Hewlett-Packard Co's data-networking business in China, worth more than US$2 billion, has thrown up a rare tussle between two Chinese state-backed firms that are wrangling over which has Beijing's backing.
The spat involving China Huaxin Post and Telecommunication Economy Development Center and Tsinghua Unigroup could prolong the sale negotiations, and highlights the complexity of cross-border investment policies that China has sought to streamline.
On Feb 15, China's National Development and Reform Commission (NDRC) approved Shanghai-based Huaxin to bid for a 51 per cent stake in H3C Technologies Co, according to the approval letter reviewed by Reuters. Unigroup has since come in with a higher offer, but without NDRC approval, and is now in talks with the regulator for permission to pursue the unit valued by HP at US$5.5 billion, people with knowledge of the matter said.
China's government generally backs a single contender as major cross-border acquisitions progress into advanced stages.
Both contenders have closed significant cross-border technology deals in recent years, with Huaxin buying an 85 per cent stake in Alcatel-Lucent's enterprise computing business, and Unigroup receiving a US$1.5 billion investment from Intel Corp.
Under Chinese regulations, the NDRC must approve outbound investments worth more than US$2 billion or which are in sensitive industries - which could apply to the server and networking equipment sector where Beijing is looking to develop its domestic industry amid fears of foreign cyberspying.
Following former US National Security Agency contractor Edward Snowden's revelations of cyberspying programmes involving American technology firms, Western tech companies have struggled for customers in China, and are now seeking local partners or selling off assets altogether to Chinese buyers.
Huaxin vice-president Liu Jun said that bidding for an asset in a sensitive industry should be restricted to approved firms, and the NDRC would not give permission to another bidder.
Unauthorised bidding is highly unusual in China - but not unheard of. In 2011, Sany Heavy Industry president Xiang Wenbo heard that rival Zoomlion had obtained NDRC approval to buy Putzmeister Group, and flew to Germany to trump the deal, sparking a public feud with Zoomlion.
Three years later, Tsinghua Unigroup took publicly traded semiconductor firm RDA Microelectronics private despite objections from Shanghai Pudong Science and Technology Investment Co, which had obtained NDRC approval.
Xiong Jin, a partner at King & Wood Mallesons, said that the NDRC's only recourse is to restrict Unigroup's capital from leaving China, but the saga highlights how the agency otherwise lacks an enforcement mechanism to punish unauthorised bidders.
Hewlett-Packard sounded out around 10 Chinese prospective buyers since putting H3C on the block a year ago. The US firm has not yet picked a preferred bidder and is in no rush to sell, while the two Chinese companies are travelling to HP's Palo Alto headquarters to lobby their case, said an individual with direct knowledge of the matter. Reuters
