The party invitations were sent, the bags were packed and the executives of Millicom International Cellular were ready to leave for Beijing to celebrate the sale of their company to China Mobile Communications.
But shortly before Millicom executives could leave for Luxembourg Airport, China was on the line and the US$5.3 billion deal was off.
That was the conclusion last week of months of negotiations between the Chinese company, hungry for acquisitions in emerging market industries, and Millicom, a mobile phone company with 9 million subscribers in developing countries.
Why the Chinese got cold feet is open for debate, but financial advisers on both sides, who spent months shuttling Chinese executives to Millicom offices stretching from Chad to El Salvador, were shocked.
Millicom issued a statement that day, July 3, saying it had terminated "all discussions concerning a potential sale." Its stock promptly fell 25 percent.
The demise of the closely watched deal, which would have been the largest overseas transaction for a Chinese government-owned company, is exposing a chasm between dealmaking styles in China and those in Europe and the US.
China Mobile's last-minute exit is viewed in its homeland as smart corporate strategy. Many analysts and deal makers say China Mobile narrowly avoided overpaying for a disparate group of assets that would have been tough to manage.
In European and American dealmaking circles, though, the way the exit was handled has prompted gnashing of teeth at investment banks and boardrooms. Had China Mobile warned Millicom earlier, it might have avoided upsetting the stock market, deal makers said, and permitted the telecom company to come up with a face-saving new bidder.
Some financial advisers warn that Chinese companies could find their buying prospects drying up as a result.
"For a lot of prospective targets, they have lost credibility," said a European banker who spoke on the condition of anonymity because he did not want to alienate any prospective Chinese clients.
The debate exposes an uncomfortable truth for deal makers salivating over the promise of Chinese expansion: corporate China's outward growth may be pegged to a strategy of mergers and acquisitions, particularly of brand-name Western companies, but executing those deals will not be easy.
Wall Street's biggest investment banks have paid multimillion-dollar salaries to hire Chinese bankers with top connections in recent years. While deal volume and equity offerings within the country have been brisk, big deals outside China have been scarce, particularly outside of the energy sector.
Acquisitions by Chinese companies (not including those in Hong Kong) outside the country fell last year to US$4.9 billion, from US$7.2 billion a year earlier, according to Thomson Financial. Countries a fraction of China's size were well ahead of that pace. Companies based in Belgium, for example, bought US$8.65 billion worth of companies outside the country last year.
Some high-profile deals have been struck recently, but they have been modest compared to the booming cross-border merger scene in the rest of the world. Lenovo bought IBM's personal computer unit for US$1.75 billion, and Nanjing Automobile bought the MG Rover Group for a price estimated at less than US$100 million, both last year. The oil company Cnooc reached an agreement to buy Unocal for US$18.5 billion, also last year, but was forced to drop the bid after US politicians objected.
Chinese companies are on track for record overseas dealmaking this year, with more than US$9.8 billion in purchases completed already. But some bankers warn against expecting a flood of big-name overseas acquisitions and say that the Millicom-China Mobile outcome might be the norm rather than the exception.
Liang Meng, co-head of China investment banking at J.P. Morgan, expects just a few major deals out of China each year. The reason, he said, is largely that Chinese managers tend to proceed more slowly than their counterparts in the West.
"They are more cautious, either because they have not done much of it or because they are entering into totally new markets or totally new environments," Meng said.
These executives have usually been in their job for 20 or 30 years, much of that time solely in China.
"They have usually moved up because they are right most of the time or all of the time," Meng said, and they want to be absolutely certain a deal is the right move.
It should not be a surprise that overseas merger volume has been subdued, some analysts said.
"We are talking about a culture of doing business that has been learned over many centuries," said Jay Berry, a professor of business studies in China at Jilin University-Lambton College and formerly a consultant with McKinsey & Co.
Chinese companies are "absolutely" slower to make deals than their foreign counterparts, Berry said.
"They are much absorbed by internal problems, tied to the wrong products, fragmented, unprofitable, uncompetitive, highly political and drowning in debt," he said.
The negotiations between China Mobile and Millicom were complicated and often very frustrating for the European advisers and executives. They said that their Chinese counterparts were difficult to pin down for meetings and that establishing a schedule to get the deal done was virtually impossible.
"If they agreed to a date, they seemed to see that as a concession," one adviser said.
Veteran China deal makers found the Europeans' discomfort amusing and said they had encountered a common negotiating tactic.
"When Kissinger and Nixon went to China, they didn't know when they were going to meet Mao," said Jack Huang (
Still, Huang cautioned against saying Chinese executives would not be able to close deals overseas.
"The Chinese know very well if you want to do deals on the international arena, you have to move expeditiously," he said. "This is not a situation where the bureaucrats don't know the realities outside of China."
Nonetheless, many Chinese companies may be operating at a disadvantage to their multinational competitors on the deal front. Multinational companies outside China generally have a special team that deals with mergers and acquisitions, notes Oded Shenkar, author of The Chinese Century and a professor of management at Ohio State University.
"They have experience and routines as to how you look at a deal, and they'd abort it fairly early on" if it was not going to work, he said.
"The Chinese do not have that yet," Shenkar said.
That will change as their experience in the energy business spreads to other industries, said Angus Barker, head of mergers and acquisitions for Asia at UBS. UBS was an adviser to Andes Petroleum, a group of Chinese oil companies, when it acquired US$1.42 billion worth of oil fields in Ecuador last year.
Judging from the energy transactions, Barker said, Chinese companies have "shown they can mix it with all comers from around the world in auctions and win."
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