CITIC Securities International’s purchase of French bank Crédit Agricole’s CLSA late last month has been touted as China’s bold banking leap forward, but in truth much caution and a painstaking crawl to a successful conclusion has typified the deal.
The deal gives CITICS International its much desired foreign partner for raising capital outside China and, pending regulatory approvals, marks the first major acquisition by a Chinese securities firm of a Western brokerage.
Gide Loyrette Nouel (GLN) advised Crédit Agricole Corporate and Investment Bank (Crédit Agricole CIB) in connection with the sale of CLSA to CITICS International, part of leading Chinese investment bank CITIC Securities Company (CITICS).
[ihc-hide-content ihc_mb_type=”show” ihc_mb_who=”1″ ihc_mb_template=”2″ ]
The GLN team advising Crédit Agricole CIB was led by partner Guillaume Rougier-Brierre, an M&A expert who spent four years in the firm’s Beijing office before returning to Paris in late 2009.
“We started three years ago with a totally different transaction,” he told China Business Law Journal. The original intention was to have a global joint venture between CITICS and Crédit Agricole.
“For regulatory reasons in China, that plan was too difficult to happen for CITICS, so from that we moved to a more simple joint venture, but then we came across another plan of CITICS, which was going for an IPO secondary offering of its shares on the Hong Kong Stock Exchange last year.
“That delayed our discussions because they couldn’t pursue two different objectives at the same time, and the IPO was their priority … So we decided to simplify the transaction and make it a simple minority stake transaction, both in Crédit Agricole Cheuvreux and CLSA.
When the CITICS IPO was completed early this year, discussions resumed, but Rougier-Brierre said there was another problem. “Equity markets had significantly changed business prospects, of Cheuvreux in particular, so CITICS said they did not feel comfortable buying Cheuvreux … they’d rather go for a straightforward transaction of CLSA only, and that was the basis of the discussions this year.
“So if you accumulate all of these events – PRC regulatory issues, CITICS IPO, equities market downturn – you have three years.”
Rougier-Brierre said that transactions in general with Chinese counterparts are “always a bit long, especially when you’re dealing with SOEs or companies related to SOEs [state-owned enterprises], like CITICS, even though they are sophisticated, still the decision process in that type of company takes time, they have to reach consensus internally, it goes back and forth, etc. “Crédit Agricole is not simple as well, so you had all the ingredients for a transaction that would take some time. But we made it happen at the end of the day.”
Rougier-Brierre said he believed the lengthy process with PRC companies had not improved in recent years. “It’s surely not getting better. I’m not sure it’s getting worse. There are two things – for inbound investment they [PRC authorities] are worried about what foreigners could do in China, so they want to control everything. When it comes to outbound investment, they are also worried because they don’t want SOEs or large companies to venture into crazy deals – in particular in regulated industries like banking and finance. This has not changed significantly in the last four or five years.”
There is still some work on the deal with regulatory processes, said Rougier-Brierre, with regulators from some 20 foreign jurisdictions that require to be notified. “They are all familiar with CITICS but still it will be notable because it’s the first time you have a large PRC firm buying into a broker. I expect [final] approval in early 2013.”
Assisting Rougier-Brierre were Arnaud Lunel (Paris), as well as Rebecca Silli (Hong Kong) and Thomas Urlacher (Beijing). CITICS was advised by Kirkland & Ellis (Nick Norris, Steven Tran, Joey Chau and Derek Poon).
The acquisition was to occur in two phases:
- The sale by Crédit Agricole CIB of 19.9% of CLSA’s capital to CITICS International for US$310,320,000 on 20 July.
- CITICS International has granted Crédit Agricole CIB a put option to sell the remaining 80.1% interest in CLSA to CITICS International for US$941,680.000, subject to regulatory and shareholder approvals.
[/ihc-hide-content]
