Supply Chain News Bites - Only from SCDigest

-May 21, 2007


Supply Chain News: Chinese Look to Get a Piece of U.S. Companies through Investment in Private Equity Group


State-owned Investment Company to Buy 10% Share of Blackstone; Back Door Strategy to Acquire Control of U.S. Businesses?


SCDigest Editorial Staff


To most, the news that an investment company owned by the Chinese government was buying 10% of a major US private equity company is just another piece of financial news. We wonder if it might be a backdoor strategy for China to eventually acquire US companies.

Blackstone is one of the largest and most successful private equity companies, with billions in assets, and complete or partial ownership of companies including Cadbury Schweppes, Michael Stores, TRW Automotive, and many others. Private equity groups in general have been a huge force in the US stock market and company strategy in recent years. Private equity investors buy established companies (as opposed to venture capitalists, which invest in newer companies), fix them up by reducing costs and other improvements, and then eventually take them public or sell them off.

Blackstone, historically a private company, has announced plans to itself become a public company. It has just announced a deal in which the Chinese investment company will buy a 10% share in the corporation before it releases its IPO.

Our question: Is this just an investment decision by the Chinese government, looking for better returns, or could this possibly be a strategy to enable China to more easily acquire control of US corporations?

As the goal of private equity is to cash in on its investments by either selling or spinning off the companies it has purchased, wouldn’t it make sense that an investment partner would get a good shot at taking its portfolio companies off Blackstone’s hands at a nice profit?

Blackstone would have an easy path to realizing value by selling to a partner/investor, and China would have perhaps as a result have less obstacles to picking up strategic US assets.

We’ve not seen this question raised elsewhere, with the focus being only on the financial aspects of the deal, but we think it’s worth asking.

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