Daimler China to Wear Safety Belt
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According to the report from the German magazine The Manager at the end of last year, the Germanybased automotive giant daimler Group (parent company of Benz brand), was looking for an investor from china. The Chinese investor is reported to have 5%-10% of the stake of Daimler Group.
Daimler’s Chief Financial Officer Bodo Uebber had already engaged a German investment bank to arrange the potential deal, said The Manager. China Investment Corporation (China Investment), which is the only sovereign investment fund in China, is the most possible bidding winner.
It is known that China Investment controls the right of investing with the huge amount of China’s foreign currencies. Presently it manages foreign currencies amounting to 200 billion U.S. dollars. In the recent two years, China Investment is actively engaged in the overseas mergers and acquisitions (M&A) and purchasing of shares. For Daimler, it is good for the German company to get more close to the Chinese government through China’s sovereign investment fund and seek further development in the Chinese automotive market.
Possible Joining of China Investment
If China Investment can finally get the 10% of the stake of Daimler, it will become the largest shareholder of this German automotive company.
After the report about China Investment’s possible acquiring shares of Daimler was published, some unknown details behind the potential deal were gradually revealed.
Actually, early in April 2009, Dieter Zetsche, board chairman and CEO of Daimler, said in the Shanghai International Automotive Show:“Daimler was indeed talking with China Investment about the equity investment. We have met for numerous times.” A source close to Daimler said that Dieter Zetsche had the opportunity to meet China’s vice premier Wang Qishan with the introduction of China Investment. “Wang is the vice premier responsible for financial issues and China Investment’s activities are within his administrative scope. This meant that the negotiation between the two parties had reached a high level at that time.”
However, when the negotiation between China Investment and Daimler was still going on, The Abu Dhabi Investment Company, a sovereign investment fund from United Arab Emirates, ran ahead of others. It spent 2.65 billion U.S. dollars in acquiring 9.1% of the stake of Daimler and thus became the largest shareholder of Daimler.
According to the public data, presently, Daimler has a complicated shareholding structure. Several investors from Germany hold 29.3% of the stake; the investors from other European countries hold 33.5% of the stake; the U.S. investors hold 18.4% shares; the investors from Middle East take 15.9% of the stake while the rest 2.9% shares belong to the other small investors. The largest shareholders of Daimler came from Middle East – The Abu Dhabi Investment Company. It is followed by the Kuwaiti government which has 6.8% of the stake.
That’s why The Manager said that China Investment could be the largest shareholder of Daimler if it buys 10% of the stake.
China Investment was founded in September 29, 2007 and is mainly engaged in the foreign exchange management and investment. It is the biggest state-owned investment bank in China. After its foundation, it conducted several overseas investments. In recent years, China Investment began to touch the automotive field. In November 2011, the Japanese media reported that a Chinese government-backed fund acquired 2.12% of Honda’s stake and is ranked at No. 7 among all Honda’s shareholders in September 2011. Later it has been proven that this fund company is China Investment.
Those being related with the China Investment-Daimler deal are very cautious when talking about the deal. A director from Daimler Northeast Asia Investment Company rejected giving any comments on the deal. But she did not deny the existence of this matter. In addition, an insider from China Investment rejected the journalist’s appeal of interview by saying that “this case is sensitive”.
Appeal of Daimler
The good development trend of the global auto industry is one of the main reasons for China Investment to buy the stake of Daimler. However, the biggest stimulus for the two parties’cooperation comes from Daimler.
Influenced by the financial crisis and European debt crisis, the sales of this company in the European and American market had less than 10 percent annual growth rate in 2010 and 2011. However, Daimler got more than 50% growth in sales in China in the past two years. Zesche said for several times in 2011 that China had become the most important market for Daimler in the world. In addition, according to Daimler’s investment plan in China, it will invest 3 billion euros in expanding its production and distribution in China from 2011 to 2015 and catch up with or surpass BMW and Audi in sales.
“For Daimler, the importance of Chinese market is beyond words. And such a big investment plan requires Daimler to put on insurance for its future result,” said Zhang Zhiyong, a wellknown analyst in the auto industry. “China Investment is backed by the Chinese government. If it is recruited as a shareholder, the government resources will be widely open to Daimler.”
And Daimler is fully aware of China Investment’s operation ability.
In July 2009, China Investment spent about 1.5 billion U.S. dollars acquiring 17.2% of Canadian largest mining company Teck Resources and thus got 6.7% of the voting right. Prior to that, Teck Resources was troubled by the 9.8-billionUSD bank debt as a result of the financial crisis. Teck Resources once planned to solve the problem by selling its stake and mining resources. After China Investment’s involvement, the stock price of Teck Resources welcomed an immediate rebound. Apart from the financial assistance, China Investment also helped Teck Resource extend its arms tot Chinese market. In 2009, nearly all large steel companies in China contacted with Teck Resources upon the introduction of China Investment. By now, Teck Resources has become a large coke supplier for Chinese steel companies. The amount of coke it exports to China nearly takes 15% of its total sales of resources in the world and the proportion is increasing. In addition, Teck Resources built cooperation with many Chinese financial institutions with the help of China Investment. Its CEO Donald Lindsay said: “The cooperation with China Investment allows us to know more about China and Chinese clients.”
Teck Resources is obviously a good example for Daimler to follow. When the report was issued, Daimler’s stock price in the New York Stock Exchanges rose 2.5% and was praised as the most welcome stock of that day. At the beginning of 2012, the shareholders of Daimler showed optimistic opinions about China Investment’s buying shares of Daimler. If the deal is done, it could drive Daimler into a period of big growth around the globe.
Doubts Still Exist
But whether this deal can be done is restricted by the other conditions.
As said before, the negotiation between Daimler and China Investment was started in 2009, but no agreement was reached till now. The two parties cannot reach an agreement in the operation control after China Investment’s joining in Daimler, which is the biggest hurdle for their negotiation.
A fund director close to China Investment said that China Investment was always a “passive financial investor” as revealed by its former investment pattern. “The said ‘passive financial investor’ means that China Investment focuses on long-term benefits and limited management. The rights of operation and control of its targets are not the main goals of China Investment.”But the director said that the previous operation pattern might be changed in the future. “In the future, the automotive industry is still the pillar industry for many countries; therefore, though China Investment does not shoulder the mission of boosting China’s automotive industry, its investment in the automotive field can bring a lot of opportunities for China. This is what the Chinese government attaches importance to.”
Analyst Zhang Zhiyong said that China Investment’s buying shares of Daimler cannot reveal the way of transmitting advanced automotive technologies. But if China Investment can earn seats in the board of directors and the voting rights through the investment, it can get access to the core information of Daimler, as well as a lot of experiences and know-how about operation, management and core technologies, which could be of great help for the Chinese auto industry. “In addition, China Investment can enlarge its stake and can influence the corporate governance and development when the time comes,” said Zhang Zhiyong.
According to Zhang Zhiyong, The Abu Dhabi Investment Company once said that it would intervene in the operation of Daimler, but recently it frequently showed its wish to get into Daimler’s directorate and supervisory board. Meanwhile, the UAE-based company once planned to hold conference of executives of Daimler regularly and join in the senior executives’ conference once every three months.
The ownership of operation right is what Daimler concerns. Because Daimler has a lot of shareholders, Zetsche does not hope that these investors own too much of the corporate operation right. It is known that he expressed his hope of not getting China Investment engaged in Daimler’s operation when the two parties began their negotiation in 2009.
Therefore, there are still doubts about the conclusion of China Investment-Daimler deal. How this thing will go on in the future is worth of attention.