M&A

Carlyle Group Buys Chinese Company

The agreement, which follows a two-round auction process involving six international bidders, is China's first leveraged buyout.
Stephen TaubOctober 26, 2005

Private equity giant The Carlyle Group has agreed to buy an 85 percent stake in Xugong Group Construction Machinery Co. Ltd., the largest construction machinery manufacturer and distributor in China, for $375 million in cash.

Xugong is currently owned by Xuzhou Construction Machinery Group, which will retain a 15 percent holding in the company, and which is wholly owned by the city government of Xuzhou.

The agreement, which follows a two-round auction process involving six international bidders, is China’s first leveraged buyout. The Associated Press noted that LBOs have been difficult to complete in China due to difficulties with financing and regulatory approvals. Until now, the only deals involved foreign investors using their own funds to buy minority stakes in Chinese companies.

As CFO magazine pointed out this month, however, foreign financial institutions have recently been snapping up minority stakes in China’s state-owned banks, eager to take a slice of a booming sector in the world’s fastest-growing economy.

Carlyle’s announcement happens to come on the heels of a high-profile visit to China by Securities and Exchange Commission chairman Christopher Cox, Secretary of the Treasury John Snow, and Federal Reserve chairman Alan Greenspan, who met with top Chinese business and financial leaders.

Earlier this year, two Chinese companies attempted hostile takeovers of U.S. businesses. Although the proposed transactions were not completed, they raised concerns that China will begin using its huge surplus of dollars to buy U.S.-based companies.