FAW Group, a Chinese automotive manufacturing company, is reportedly targeting to acquire Brilliance China Automotive Holdings in a two-stage deal for over $7.2 billion. The upcoming deal is expected to see BMW’s Chinese partner go private.
Following the recent announcement, Brilliance shares rose by over a quarter in value. The potential acquisition deal by the No. 2 Chinese automaker happened at a time when the top shareholder of Brilliance, Huachen Automotive Group, is on the verge of going bankrupt, having defaulted on $1 billion (6.5 billion yuan) in debt obligations in 2020.
As per the plans being discussed, the Chinese automobile company is planning to initially purchase 30.43% of Brilliance shares owned by Huachen Automotive, as well as 11.89% shares held by Liaoning Provincial Transportation Investment Group. After gaining control of these shares, the company will then make a mandatory bid for the remaining shares, with plans to offer nearly HK$11 per share for both the stages of the agreement. It represents a 70% premium to the average share price of HK$6.48.
Sources familiar with the matter have reportedly stated that the automobile company is targeting to set up an offshore investment vehicle as well as invite other investors to participate in the deal. In order to take Brilliance private, Liaoning Provincial Transportation has been planning to lead a consortium of state-backed investors. The plan, however, was put on hold due to the differences in valuations & financing difficulties, sources added.
Based on the plan announced in 2018, the stake of Brilliance is worth €7.2 billion ($8.7 billion), which is higher than its current market value. Its shares have recently been traded at 13% higher, reaching a market capitalization of over $4.7 billion.
FAW Group, BMW, Liaoning Provincial Transportation Investment Group, and Brilliance declined to immediately respond to requests for comments.