By Melanie Lee
SHANGHAI, Dec 21 (Reuters) - China's Xinmao Group is pressing ahead with a 1 billion euro ($1.3 billion) bid for cable maker Draka , but has yet to convince the Dutch company to prefer it over an earlier but lower offer from Italy's Prysmian .
Xinmao said on Monday it would submit an offer request to the Dutch stock market regulator by Feb. 14, adding it was convinced it would get the backing of key Draka investor Flint Beheer, a family-controlled fund which has a 48.5 percent stake. [ID:nLDE6BJ0M1]
Here are some questions and answers as to what is next in the battle for Draka. For more stories, click [ID:nLDE6AN20J]
WILL XINMAO'S BID SUCCEED?
Draka was swift to dismiss Xinmao's bid plan on Monday as unofficial, saying it will stick with Prysmian's cash-and-share offer which values Draka at 832 million euros.
Currently Xinmao's bid is hinged on whether it can get government support and in turn win over Draka's shareholders in the limited time that it has. With Draka and Prysmian already holding hands and willing to go forward with their deal, the chips appear to be stacked against Xinmao.
However, Delta Lloyd Asset Management which owns between 2 and 3 percent of Draka, said it sees more than a 50 percent chance of Xinmao succeeding.
Xinmao also faces a possible tidal wave of European regulatory opposition. Already the European Union industry chief and the French and Italian ministers for industry have voiced concern over Xinmao's bid, saying it will give China access to vital know-how to the detriment of Europe.
This chorus is not unfamiliar to Chinese technology firms looking for overseas buys. Huawei , China's largest telecommunication equipment maker, frequently faces this refrain, whether it is bidding for contracts with U.S. telcos or on the hunt for U.S. firms.
WHY IS XINMAO WAITING UNTIL FEB. 14?
The most likely reason Xinmao is waiting until mid-February to submit an offer is to give a longer lead time to Chinese regulators to examine and approve the deal, something unlikely to happen before the Lunar New Year beginning Feb 2.
There is no guarantee that Xinmao can receive approval from the three government bodies required to approve the deal by that time.
Chinese regulators can kill off deals they do not approve of by saying they have not received all necessary documents, or the application itself. [ID:nTOE6B605T]
At least two such deals were stonewalled over the past two years, including Chinese Internet firm Sina's proposed merger with Focus Media , and equipment maker Tengzhong's attempt to buy the Hummer heavy-duty SUV brand from General Motors .
Spokespeople for the Ministry of Commerce and State Administration for Foreign Exchange said they were not immediately aware of any application from Xinmao said it was difficult to say because of the constant high volume of applications. No one at National Development and Reform Commission was available for comment. However, Xinmao's strong backing from the Tianjin city government is significant, as Tianjin is one of five centrally governed Chinese cities designated to receive special treatment for development, along with Beijing, Shanghai, Chongqing and Guangzhou.
An added complication is the Lunar New Year holiday from Feb 2-8. Lunar New Year is one of the two Golden Week holidays in China and spurs the largest annual human migration in the world. Government offices and businesses are shut during that period and the weeks leading up to the holiday are very quiet as people start to return to their hometowns.
CAN THE BID GO HOSTILE?
Xinmao's offer is currently not hostile as Draka has not turned it down and is merely calling it unofficial.
Xinmao's adviser declined to comment on whether it could go hostile, but Xinmao has said the signing of a merger protocol with Draka is no longer a condition for financing given the accelerated timeframe.
That timeframe refers to Draka and Prysmian deciding on Dec. 15 to hold shareholder meetings in late January for votes on the deal. Prysmian said on Monday its offer would start early in January as soon as it has Dutch market approval, but it didn't provide timing for the close of the offer.
Xinmao is well aware that its plan to buy Draka may be derailed if Draka and Prysmian do not wait for Xinmao's official offer. The guarantee of financing without a merger protocol could lead to a hostile bid should the current "constructive discussions" with Draka fall through.
WHY HAS XINMAO APPOINTED RABOBANK AS ADVISER?
Lack of a recognised international adviser was one reason cited by analysts and bankers for their scepticism about Xinmao succeeding in its bid.
Rabobank is a Dutch bank which is present in China, and so has experience on both ends of this deal. This could add a degree of comfort to both sides, which continue to have questions about each other.
However, as an M&A adviser and debt capital markets handler, Rabobank has very little history. In fact, according to Thomson Reuters, it did not make it into the top 25 global M&A advisers last year, and it does not appear on the Debt Capital Markets league table year-end review.
WHAT'S NEXT FOR XINMAO?
What's next for the deal depends on Draka and whether the discussions continue to be friendly. Xinmao's insistence on forging ahead despite Draka going along with Prysmian on an accelerated schedule, coupled with the exasperation of being seen as not a serious player, could lead it to make a hostile bid to interrupt the Draka-Prysmian partnership.
However, the Chinese would not wish to lose face. Depending on how much Xinmao and the Chinese government want to push the deal, it could be that Xinmao decides it is not worth the trouble of the high-profile European regulatory scrutiny and fractious shareholders, and simply walk away. (Additional reporting by Mike Flaherty in HONG KONG and Terril Jones in BEIJING; Editing by Lincoln Feast)