In a deal termed "innovative, by Chinese standards," FAG Kugelfischer Georg Schaefer AG (Germany, a division of INA Holding KG, Germany) is acquiring approximately 100 million "B" shares of Shanggong Company Ltd. (China) for USD $50 million.
INA/FAG is the world's second-largest bearing manufacturer. Shanggong is China's largest manufacturer of domestic and industrial sewing equipment, with over 100 different products exported to over 50 countries. Annual sales are approximately $100 million, with exports accounting for about half. Since 1997, the company's shares have traded on the Shanghai stock exchange; its A shares are primarily state-owned, while there are currently three B share holders.
Originally, the new "B" share placement apparently involved FAG investing $24 million, with other companies taking $26 million.
However, the latest publicized iteration, apparently as approved by China's Securities Regulatory Commission, has FAG acquiring all $50 million itself.
The "innovative" part of the deal then will follow, as Shanggong uses approximately $24 million to acquire FAG's Duerkopp Adler sewing machine and industrial conveyor division. Essentially, this creates a de facto joint venture between FAG and Shanggong, at the value of Duerkopp Adler. It allows Duerkopp Adler to leverage Shanggong's market position in Asia and Shanggong to offer more options to its customers.
In late 2000, eBearing reported FAG's decision to sell off Duerkopp Adler after returning the division to profitability.
Although we think of FAG as a bearing manufacturer, it in fact started as a sewing machine repair shop in the late 1800's.
FAG is acquiring the shares in what amounts to a private placement and ownership swap, concepts almost unknown in China's equity markets. Until early 2001, B shares were only open to foreign investors; they happen only in U.S. dollars and Hong Kong dollars. If the deal goes through as approved by regulators, it would mark the first issuance of B shares by a Chinese company in over two years. Shanggong currently has three B share holders, all foreign-investment arms of private Wall Street banks.
Nantang Securities, the Shanghai-based underwriter, said, "The share placement will take place as soon as possible. Using private placements and share swaps is an innovative tool to make an acquisition in China."
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