Companies

China North Industries to gobble up XCMG

By Liu Yiyu (China Daily)
Updated: 2010-06-02 10:35

Beijing - XCMG Construction Machinery Co Ltd, China's largest construction machinery maker, confirmed on Tuesday that China North Industries Group Corp will take over the company, according to an XCMG official.

The company spokesman said the agreement was signed between China North Industries and the government of Jiangsu province where XCMG is located, without disclosing any details on the acquisition.

According to the agreement, China North Industries will invest 15 billion yuan ($2.2 billion) between 2011 and 2015 to build research and production bases for construction machinery and vehicles, optoelectronics and chemical engineering.

The acquisition will turn XCMG, a local State-owned enterprise (SOE), into a central government-led SOE, providing the company with sufficient funds for future development, said Xu Xingyue, industry analyst at Greatwall Securities.

XCMG makes a variety of construction machinery including front-end loaders, bulldozers, graders, excavators, cranes and fire-fighting vehicles.

In the meantime, XCMG is selling its Caterpillar joint-venture assets for 628 million yuan as the 16-year cooperation comes to an end. Illinois-based Caterpillar is one of the world's largest makers of construction and mining equipment.

A spokesman for XCMG said earlier they had been scouting for a strategic investor after the Carlyle Group deal failed.

The long-pending investment plan between XCMG and investment firm Carlyle sparked controversy over the security of a key industry and valuation of national assets.

Related readings:  China's XCMG forecasts 77% net profit jump in Q1 on strong demand  China's XCMG posts soaring business revenue in 2009  XCMG plans share placement to raise additional capital  XCMG steps up overseas presence

Carlyle offered $375 million in 2005 for a controlling 85 percent stake, but trimmed it to 45 percent in 2007. The Ministry of Commerce, however, rejected both offers.

XCMG's market value is likely to reach 35 billion yuan after its latest private share placement of 5 billion yuan, industry analysts estimated, putting the acquisition cost at around 10 billion yuan, much higher than Carlyle's offer.

China North Industries is the major research and production base for military weaponry and related supplies for the Chinese army. It also produces various arms, ammunition and equipment for the Chinese navy, air force, Second Artillery Force and police.

Therefore, some analysts have expressed concern that the military background of China North Industries will hamper XCMG's overseas expansion.