For years, "softly softly" was the approach taken by Chinese companies making investments in western groups. Now the gloves are coming off and they are taking a much more combative stance. This is what Wanhua Industrial Group appears to have done with BorsodChem, the indebted Hungarian chemicals group it has been seeking to take control by use of unusually aggressive M&A tactics.
The Chinese chemicals conglomerate approached Permira and VCP Capital Partners, BorsodChem's private equity owners, last year with an offer to buy a stake in the company. Permira was then in talks with BorsodChem's lenders about restructuring the group's debt after it breached banking covenants. Permira refused to entertain Wanhua's offer, arguing it had only owned the company since 2006 and wanted to agree a consensual restructuring with its creditors. Undeterred, Wanhua snapped up 75 per cent of the Hungarian company's debt from investors European Capital and Alcentra, for about 25 cents in the dollar.
That left Permira and VCP with little choice but to engage with the Chinese and last week the three parties agreed a deal which will see the Chinese group inject an initial €30m (£27m) into BorsodChem immediately, followed by a second tranche of €110m within the next five weeks. In return, Wanhua will become a "significant" minority owner in BorsodChem through a debt-equity swap, and hold a call option over the buy-out groups' stakes in BorsodChem within the next two years. It is extremely rare to see a Chinese company behave so aggressively and it has left bankers trembling with excitement.
Few Western competitors would employ such rough tactics. Indeed, Wanhua's actions are almost a throwback to the early 1990s, when a wave of company reorganisations provided rich pickings for vulture investors. Permira should have read Wanhua's website before dismissing it as just another rookie Chinese company lacking knowhow. Wanhua states that its competitors may be century-old enterprises which are unlikely to become weaker, leaving it with little choice but to become stronger itself. If that requires bare- knuckle tactics, so be it.
lina.saigol@ft.com