Bohong to acquire Wescast

Company will purchase Canadian car parts supplier for $183 million

BEIJING - China's Sichuan Bohong Industry Co Ltd has entered into a Memorandum of Understanding with Canadian auto parts supplier Wescast Industries Inc to acquire the latter at an expected price of approximately $13.60 a share in cash, a deal with a total value of about $183 million.

The two said in a joint statement that Bohong has completed its due diligence and, as a sign of good faith to complete the acquisition, has agreed to provide a deposit of C$2 million ($2.03 million) to Wescast, a leading supplier of cast exhaust manifolds for passenger cars and light trucks.

To complete the acquisition, Bohong said it will need to obtain committed financing from China Development Bank Corp before Dec 30, which is also the deadline for the two parties to achieve a definitive agreement on the arrangement, according to the statement. The period can be extended upon payments of subsequent deposits.

The acquisition will be subject to a number of closing conditions.

"We are excited by the prospective combination of Bohong and Wescast for our customers and employees. We believe that the two companies are highly complementary in terms of products, services and operating values," said Ed Frackowiak, chairman and CEO of Wescast.

"In particular, we are excited by the potential to pursue future opportunities globally. This acquisition would accelerate some of the exciting new technology initiatives underway at Wescast."

Established in 1999, Sichuan-based Bohong is engaged in the automobile, manufacturing, real estate and new energy sectors. With assets valued at around 3 billion yuan ($470 million) and more than 2,300 employees, the company's annual sales was nearly 4 billion yuan last year.

Wescast currently employs about 2,000 people globally in seven production facilities and five sales and design centers. It supplies the car and light-truck markets in North America, Europe, Asia, Africa, South America and Australia.

"Bohong intends to build on Wescast's long history and believes that this acquisition will help Bohong and China's automobile industry to reach a new platform in servicing global customers," said Dong Ping, chairman and CEO of the Chinese company.

Bohong, which plans to establish 50 4S stores (sales, spare parts, service and survey) in southwestern China within five years, also aims to invest 2 billion yuan in machinery production and the casting and machining of auto parts.

"Chinese investors are becoming very active on the global transaction market for automotive suppliers recently," said Shen Jun, a partner at Roland Berger Strategy Consultants.

"And the takeover of foreign auto suppliers can help Chinese automakers improve the competitiveness of their products, then win higher market share with more complex products and technologies in international markets," Shen said.

Alex Fan, president of merger-and-acquisition specialist Crestridge Consulting in Los Angeles, agreed that it's smart for Chinese automakers to target struggling parts suppliers overseas.

He said that "buying a parts manufacturer can truly help Chinese automakers acquire the technologies, which is a shortcut to strengthening their capability to produce high-quality and value-added cars".

China Daily

(China Daily 09/09/2011 page15)