China – Using Its Playbook to Get Back in The Game?

Comments By Tshepo Magagane

The level of naivety is truly scary and surprising at the same time!

Few egs

1. In the mid-00s during the lead up to Chinese Steel production – we were very close to ArcelorMittal – through its deals from EEurope, WEurope, SAmerica, Africa, NAmerica…

…all done, even the takeover of Arcelor in France – that was a national champion in France – why to this day Arcelor comes before Mittal…

…but China was a different beast – the idea was to take control of a small steel producer and use that as a consolidator in the sector – we knew that you had to deal with overcapacity…same thing you see playing out…

…we were so confident of being able to pull it off, that my colleagues – talking incl a close friend who was an analyst travelled first class into Beijing on this deal / pipeline…I was focused on Turkey/Oyak at the time…

…China put a stop to the idea by limiting the holding in the company to 25%…

2. Plant assets in Germany – China comes in over the top – expecting a 2wk DD with <10 people – request is for hundreds of people for 9mths or so…

…they took down that plant bolt for bolt!

3. Bids for company with assets in Africa – BO stage as only one…goes on confirmatory DD…

…comes back with no adverse finding but wants to adjust the price down (SIGNIFICANTLY – no reason)

Summary – China plays for keeps…this strategy is scaringly naive…

…there is potentially a route to bring in the Chinese but not this naively!

Even what is happening right now with the auto sector – will the Western OEMs survive (a lot of own goals there on pricing and quality)…

…or see what the DRC has to resort to with China running down LoM at Tenke from 32yrs to c9yrs!