Germany has signalled a new, more open approach to Chinese investment by green lighting the $5 billion takeover this week of Augsburg robotics specialist Kuka, a key supplier to the auto industry. The deal, which will guarantee jobs in Germany for seven years, may make possible a new wave of Chinese investment.
The change in policy became apparent on Tuesday night when Kuka suddenly changed its strategy and said it would back its purchase by Midea, a Chinese maker of kitchen appliances which already owns 13.5 percent in the Bavarian maker of robots that are ubiquitous in the assembly lines of Daimler, BMW and VW.
Not only will the deal represent the largest ever by a Chinese company in Germany, the concessions that were negotiated to make it possible could form a new standard that will lead to increasing Chinese investment in Europe’s largest economy and industrial center, experts said.
Under the deal, the Chinese overcame German government concerns about losing a strategic player in the country’s all-important auto sector after Midea agreed to guarantee Kuka jobs through 2023, to keep its headquarters in Augsburg and to keep patented information in German hands.
“You currently can see such a form of light touch integration from almost all Chinese investors in Germany,” Lutz Berners, the managing director of Berners Consulting, a Stuttgart consultant to Chinese and German companies, told Handelsblatt Global Edition.
Mr. Berners said Chinese investors are keen to preserve German innovation in the long term, and are willing to make concessions to ease German concerns about a loss of strategic technology. It would be “senseless,” he said, to attempt to do something with Kuka or other acquisitiosn that weakens German engineering expertise.
The new strategic understanding between Germany and China became apparent when Kuka on Tuesday said it had reached an investor agreement with Midea that included concessions that addressed the concerns of corporate and political leaders in Germany.
Midea committed not to undertake a corporate reorganization of Kuka or to take any action that could lead to a delisting of the company, the companies said in a joint statement.
The German government has voiced concerns over yet another Chinese acquisition of a German company, and particularly one that has carved out a profitable niche in the high-tech robotic sector and is an important supplier to the German car industry.
“Together with Midea, we’ll be able to implement our existing strategy even better. At the same time, we will remain a German company.”
Midea’s €4.5 billion ($4.97 billion) offer for Kuka would be the largest acquisition of a German industrial company by a Chinese buyer and follows a number of other billion-dollar deals by Chinese firms in Germany.
The guarantees sealed in the Kuka deal could provide a blueprint for further Chinese buyers in Europe’s largest economy. Kuka is the largest in a string of recent Chinese purchases that includes machine maker Krauss-Maffei, Apple component maker Manz, and others.
Last year, 36 German companies went into Chinese owership. This year, acquisitions are on the rise again. This year through May, Chinese buyers invested €5.7 billion in German firms, according to KPMG. In the decade before that, total Chinese investment had been €7.7 billion.
“China’s slower economic growth is driving its investment abroad,” said André Loesekrug-Pietri, the founder of A Capital, a Brussels-based mid-cap growth fund that focuses on Euro-Asia private equity transactions.
The wave of Chinese acquisitions had stoked concern in Germany that key technology and innovation would migrate to China, hurting German employment. The biggest Chinese takeover of a German company so far has been Weichai Power’s $1.69 billion acquisition of machine maker Kion.
Midea’s offer for Kuka is worth €115 per Kuka share. The stock traded up 0.4 percent at €106.85 at 4:30 p.m. in Frankfurt on Wednesday.
When Midea, a maker of appliances such as washing machines and air conditioners, announced its bid last month, the offer set off a political controversy in Berlin. Vice Chancellor and Economics Minister Sigmar Gabriel said he wanted a European counter offer for Kuka and Guenther Oettinger, Germany’s E.U. commissioner, called for a European bidder too.
Midea’s Kuka bid had even sparked a government probe into how Germany could better block unwanted overtures by foreign companies in the future, government sources told Handelsblatt earlier this month.
Jost Wübbeke, an analyst at the Mercator Institute for China Studies in Berlin, shares the concerns about the loss of key innovations to China. “The deal concerns a technologically sensitive area that can hurt Germany,” Mr. Wübbeke told Handelsblatt Global Edition.
But the commitments secured by Kuka — perhaps with the support of the German government — address these concerns, demanding flexibility from the Chinese. “One of the assurances until 2023 is sort of a shielding arrangement that protects patents and ensures technology does not pass over to China,” Mr. Wübbeke said.
Under the agreement presented Tuesday, Midea committed to a hands-off approach in the acquisition, with assurances that locations and jobs will be retained, a commitment to Kuka’s existing strategy and the executive board’s continued independence.
Kuka’s chief executive officer, Till Reuter, who with the supervisory board recommended shareholders accept the deal, said he was pleased with the agreement and was ready to move ahead.
“Together with Midea, we’ll be able to implement our existing strategy even better,” he said in a statement. “At the same time, we will remain a German company.”
Mr. Reuter noted that all the assurances are “legally binding” and the agreed term of seven and a half years to guarantee German jobs is longer than usual.
It is yet unclear whether Kuka’s shareholders will accept the deal. German engineering company Voith Group holds 25 percent of Kuka, and German billionaire Friedhelm Loh owns 10 percent. Both have accused Mr. Reuter of being too positive about the offer.
Market uncertainty and turbulence sparked by Britain’s decision to leave the European Union seems to have made the offer of the Chinese Midea Group more appealing for Kuka.
According to sources close to a major shareholder, recent stock market slides have made the offer more attractive to the Voith Group and Mr. Loh – and have made a counteroffer more unlikely.