The Chinese heavy machinery maker that agreed to buy General Motors’ Hummer brand may find the biggest stumbling blocks to the deal in its home country.
Following last week’s surprise announcement that Sichuan Tengzhong Heavy Industrial Machinery and GM had reached an agreement, analysts and Chinese media were buzzing with talk that the two companies might have jumped the gun.
Reuters newsagency says the pitfalls range from regulatory to financing issues.
GM said a day after its bankruptcy filing that it did not expect any regulatory scrutiny from the US government on the deal, part of its attempt to restore profits by focusing on four core brands: Buick, GMC, Cadillac and Chevrolet.
According to Reuters many China watchers say that resistance could actually come from China itself, as Beijing pushes for development of more energy-efficient technologies that go contrary to Hummer’s lineup of big SUVs.
As the world’s second-largest energy user, China is trying to encourage its citizens and industry to be more fuel efficient to lower its energy bill and improve its environment.
The Hummer deal may also not get government approval as Beijing is not encouraging its carmakers to make foreign acquisitions, the official Shanghai Securities News reported, citing people with knowledge of the matter.
“Some people may have views and speculation but the Chinese government has a process that we respect,” the Tengzhong official said.
“We have only just signed an MoU (Memorandum of Understanding), but as we develop our proposals with GM and Hummer we will continue to work with the appropriate authorities.”
Some analysts said Chinese leaders may also be reluctant to let a company with no experience running an overseas operation take on such a high profile and risky acquisition.
“Obviously, Tengzhong is not a well-established company, and its business doesn’t fit well with Hummer, so the deal looks tricky,” said Jeffery Wang, Shanghai-based managing director of investment bank Business Development Asia.
“Apart from that, buying Hummer should be a poor business decision in the long run, as … I don’t think Tengzhong has the ability or resources to turn the business around. … I don’t think any banks would be willing to fund the acquisition by a company without a solid background.”
Tengzhong was in advanced talks with banks, a spokeswoman from Tengzhong told Reuters.
“However, as you would appreciate, the funding can’t be finalized prior to a definitive agreement being signed,” she said.
Little is know about Tengzhong, which is based in the Chinese province of Sichuan, other than it makes special-use vehicles, highway and bridge structural components, construction machinery and energy equipment.
Tengzhong was formed in 2005 through a series of mergers and, according to its Web site, has 4800 employees.