China Kills Buyout Of Hummer

GM wants to sell Hummer. It needs the money. Sichuan Tengzhong, a heavy equipment firm based in China, looked like a ready buyer. GM would like to find an acquirer that would save most of the unit’s jobs. Sichuan Tengzhong seemed to fit that bill.

Now it appears that the Chinese government has killed any chance of a transaction. According to the AP, it is because the equipment company “lacks expertise to run Hummer.”

The news is a strong indication that China wants to push its companies to expand abroad, particularly if they can buy depressed assets at fire sale prices, but it does not want to risk failures. Sinopec (SNP), a big mainland oil company, just agreed to pay $7.2 billion for Addax Petroleum to get access to African crude reserves. Chinalco, a major Chinese metals firm, thought it had a deal to buy an 18% stake in mining company Rio Tinto (RTP) for almost $20 billion. Rumors are that pressure from the Australian government helped scuttle the transaction. China faced public humiliation as a smaller country killed an important deal.

China has also loaned Brazilian oil company Petrobras $10 billion to help it develop deep sea oil reserves in the southern Atlantic. The world’s most populous nation has been aggressive in trying to lock up future supplies of crude.

The Hummer deal may have been killed because the Chinese did not want to see one of their companies to get involved in businesses that are not strategic the the national interests and may have a high risk of faltering financially. Hummer is already in trouble because high gas prices are decimating its sales. There is no reason to believe that a Chinese firm, or any other firm for that matter, can fix Hummer’s problems.

China may have meddled in Sichuan Tengzhong’s plans because a misstep would have been bad PR.

Douglas A. McIntyre