Thursday, October 25, 2007

Did GE Stub Its China Toe?

GE (GE) recently pulled out of its proposed acquisition of Shenzhen Development Bank. The termination was announced by Shenzhen and not GE. I cannot find any comment of it on GE web sites or press releases attributed to GE relating to the deal.

The deal tanked because of concerns it would have to pay more than the price set in a 2005 agreement, as per a rule released by the securities regulator last year. The rule stipulates that private share sales be priced at 90 percent or more of the recent average trading price of a listed company's tradable shares. The share price has increased dramatically since the offer and GE is unwilling to increase the price offered.

Jeff Immelt GE Chairman and CEO is not happy as this quote was attributed to him "GE was not satisfied with the cooperation with Shenzhen Development Bank. China's financial sector is still in an early development stage, and GE has been continually looking for better opportunities in cooperating with other banks." The quote could be found on and

An analyst from CITIC She Minhua, said Companies now have to reset the value of listed companies' shares so that they're fair and find better opportunities to purchase stakes. But She said GE's withdrawal from the deal will not affect Shenzhen Development Bank as it has raised enough money on the market to fund its capital adequacy ratio. CITIC of course is the newbie on the Bear Stearns (BSC)scene.

The Chinese market has risen tremendously. GE is not a buy high sell low investor. GE may have been able to help out Shenzhen. But Shenzhen managed without them. There would be great honour in fighting off the great American Devil. Immelt is clearly annoyed that matters did not unfold according to the GE playbook.

GE was outfoxed. The Monday morning quarterbacks are asking if GE had this properly figured out. Is GE reviewing their strategy or are they just going to blame someone else? While China has many early stage elements it also has accumulated enormous amounts of capital. Viewing China exclusively as an early stage situation begs to many other questions.