Shuanghui+Smithfield: Challenges & Perceptions of Chinese Overseas Acquisitions

coverLast month, MSLGROUP in China launched a report discussing how Chinese companies can level the playing field in terms of outbound M&A negotiations, and potentially save the country more than US$30 billion in the form of a premiums of up to 20% that professional advisers commonly agree are currently required in order to even stand a chance of being successful. Even then attempts by Chinese companies to acquire companies overseas often face opposition at the public and political levels.

The most recent example is of course the high profile Shuanghui International Ltd. acquisition of Smithfield in the United States (which happens to be the world’s largest pork supplier). If successful, Shuanghui International would take control of 460 U.S. farms and contracts with 2,100 others, which would be a significant challenge on a number of levels due to the sheer size and the fact that it is in a sector that China has suffered some major brand issues at the industry level with food safety scares.

Smithfield’s CEO is now facing U.S. Congress, as the deal is being examined by CFIUS (the Committee on Foreign Investment in the United States).

Perception of Chinese Companies Today

Our survey of more than 1,600 people in the UK, the US and France, reveals that while 69% of the public acknowledges that Chinese companies will become more prominent globally in the future, 58% see the prospect of their company being acquired by a Chinese company as a threat, and 57% would be concerned if someone from China headed the company they work for. Only 15% see being acquired by a Chinese company as an opportunity. What’s more 85% would prefer that their company be acquired by a buyer from North America or Western Europe.

That said, there will be a growing number of buyers coming from China, as Western nations court the Asian giant for some of its investment dollars and China seeks to progress its ‘go global’ strategy. It is everyone’s interests that these deals are successful.

Key Considerations For Communicators

Business leaders are rapidly recognizing that communications plays a crucial role in setting the platform for a successful deal. Some important considerations include:

Reputation can make or break a deal– Chinese brands may be very famous domestically with more of a following that the entire populations of many nations, however beyond China’s borders, awareness and certainly familiarity is likely to be very low. In addition, Chinese brands have a legacy reputation for being low quality. Building a profile of the company and brand well ahead of any deal announcement will help foster some understanding.

Social resistance– the prevalence of social media has changed the communications landscape forever, giving the masses a platform to voice their concerns and complaints. This can influence the decisions of regulators and even targets. Establishing an effective listening mechanism and have a rapid response system in place will help manage online chatter.

Political resistance has once again been highlighted by the current Smithfield deal.Mapping out important government influencers and engaging them in dialogue early in the process will help reassure and allay concern. Done well it can also lead to advocates providing commentary to journalists.

Employees are an important asset but equally they can be vocal opponents. Keeping them regularly informed through various channels of communication – CEO emails, Intranet, town-hall meetings etc will help keep employees onside, and will prevent performance levels dropping as a result of employees being concerned and distracted.

Investors can block a deal and following the scandals highlighted by Muddy Waters, and the global financial crises, investors have become nervous and skeptical. Regular, transparent and open communications that highlight the win-win rationale behind the deal will lubricate investor support.

Clearly, there is room for a lot more participation from Chinese companies in the global marketplace, but this will not come without some hard work and effective communications.

Read a more in-depth view in our report:

Author: James Hawksworth,
Director, Beijing
MSLGROUP Financial Communications
Advisory Twitter hashtag: #smithfield #China #acquisition
Follow the author on Twitter: @jameshawksworth