Apr 13, 2012 03:57 PM

Companies' Marriage Plans Still on Hold


(Beijing) – The courtship between CITIC Securities Co., Ltd. and CLSA Asia-Pacific Markets has been full of twists and turns, just as CITIC's efforts to take its business international were. And no firm date for a trip down the aisle is in sight.

CITIC Securities and CLSA's controlling stakeholder, Credit Agricole Bank, signed their first draft of cooperation in 2010. At the time, they agreed to establish a 50-50 joint venture headquartered in Hong Kong. The two sides would not fund the joint venture in cash. CITIC Securities would inject its Hong Kong-based subsidiary CITIC Securities International into the company, while Credit Agricole Bank would inject CLSA.

In June 2011, the second cooperation agreement was released after adjustment. CITIC Securities decided to have its wholly owned subsidiary, CITIC Securities International, pay a total of US$ 374 million to acquire a 19.9 percent stake in both CLSA and CA Cheuvreux, another subsidiary of Credit Agricole Bank.

At the time, a source close to the transaction said: "Negotiations are proceeding smoothly, but the final agreement hasn't been signed. It needs to be constantly promoted and ultimately put into effect. So the two sides have established a relationship, but they haven't tied the knot and gotten the marriage certificate."

Uncertain Acquisition

Unexpectedly, a new variable in the relationship popped up. On March 29, CITIC Securities announced it would no longer acquire the equity in CA Cheuvreux, but it would continue to invest in a 19.9 percent stake in CLSA and would enter exclusive negotiations with CLSA as quickly as possible to acquire the remaining 80.1 percent stake.

CITIC Securities Secretary of the Board Zheng Jing said that the acquisition was still uncertain.

Regarding the change to the deal, a source close to CITIC Securities said: "International business isn't so easy to expand. The difficulty of building a new platform far exceeds acquiring an existing platform. This is the reason for this full acquisition."

CITIC likely would not use all cash for the acquisition, he said. Based on the formally agreed price tag of the 19.9 percent stake, the price of the remaining shares would be too high, so an all-cash acquisition would be impossible. "It's likely to be done through equity swaps."

Question of Integration

Besides price and stake, the core content of the cooperation with CLSA is how to integrate the two and develop synergy, which will take time and wisdom.

CLSA's Asia-Pacific business mainly includes brokerage, investment banking and private equity business. On the brokerage side, CLSA's research is lauded in the industry, but investment banking is not its forte.

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