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Carlyle reduces Xugong bid again

By Wan Zhihong (China Daily)
Updated: 2007-03-20 08:59

USprivate equityfirm The Carlyle Group has again agreed to cut its offer for Xugong Group Construction Machinery Co Ltd (Xugong), reducing its stake from 50 to 45 percent in its second major concession.

Carlyle signed an agreement with Xugong to lower its proposed stake to 45 percent, Xugong said in a statement to theShenzhen Stock Exchangeyesterday.

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Under the new agreement, Xugong would be 55-percent-owned by Xuzhou Construction Machinery Group (XCMG), which is owned by the Xuzhou local government. XCMG would have five seats on the board of the new entity, while Carlyle would have four, according to the statement.

It did not provide any financial details, and said the deal still needed approval from the central government. A Carlyle spokeswoman would not disclose any further details.

The revised agreement suggests regulators are keeping a tight grip onmergers andacquisitions, said an analyst who declined to be named.

"The Xugong deal is important to Carlyle as it may impact its other acquisitions in China," said Jenny Ma, vice-president of THTB Capital Ltd.

The deal reflects the government's attitude toward foreign access to key industrial assets, said Ma, who helped Royal Dutch Shell buy a 75-percent stake in China's largest privately owned lubricant oil company Tongyi last year.

In October 2005, Carlyle agreed to buy 85 percent of Xugong for $375 million. It would have been the biggest acquisition by a foreign investor of a controlling stake in a leading State-owned company in China.

The takeover bid has raised concern that China has been selling its strategic companies too cheaply to foreign investors, and has been in the hands of the central government for a long time.