Not the new Berkshire

In China, Corporate governance on 01/04/2016 at 11:19 am

Anbang’s owner CV in managing money: he maeeied into Deng Xiaoping’s family, marrting a granddaughter. But he’s no Buffett

From NYT Dealbook:

THE UNSETTLING ACQUISITIVENESS OF ANBANG Anbang’s spending spree is a sign that deal-making has gone awry, Steven Davidoff Solomon writes in the Deal Professor column.

Strategic bidders typically triumph over financial bidders in takeover battles because the strategic buyer is an operating company and can almost always pay more. The strategic buyer can expect to earn more through cost savings. The last time financial buyers regularly beat strategic buyers was before the financial crisis as the credit bubble drove a huge feeding frenzy in private equity.

Anbang appears to be trying to build itself into a conglomerate along the lines of Berkshire Hathaway and, like Berkshire, is using insurance reserves to buy assets in businesses such as banking and real estate. It spent over $2 billion on insurers in Belgium and South Korea in 2015.

The funding comes from selling high-yield investment products to Chinese citizens. If this type of company existed in the United States, there would be an outcry, Mr. Davidoff Solomon writes. An insurance company that appears out of nowhere to become a giant after 10 years before buying noncore assets abundantly? We’ve seen this story before and it typically doesn’t end well.

And who would manage Starwood? None of the investors in Anbang’s consortium have much hotel experience. Anbang could keep on the Starwood team, but Anbang has already had trouble managing its new subsidiaries. The management team at its Belgian acquisition left after a few months amid complaints about Anbang’s management style.

Anbang may already have pushed too far. China’s insurance regulator is set to reject its takeover plans because the deals would break rules banning insurers from investing more than 15 percent of their assets abroad, according to the financial magazine Caixin. The Financial Timesreported that people close to the deal played down the report, saying that Anbang believes the regulator would only become involved if the hotel chain purchases were funded with insurance premiums.

Nonetheless, if Anbang were to pursue the deals, there remains the question of whether Anbang could capably run Starwood. There is too much risk here and the deal raises issues about takeovers and the responsibility to look out for the company itself.

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