MAN Deal Gives China's Sinotruk a Global Push

Even as Chinese auto makers scour the global landscape for acquisition targets, one industry leader hopes a strategic investment from a higher-end rival will help it ascend the value chain.

Sinotruk (Hong Kong) Ltd., China's largest heavy-truck manufacturer by sales volume, last week agreed to sell just over a 25% stake in itself to German truck maker MAN SE for €560 million (US$796 million).

 
 
Sinotruk's deal with German truck maker MAN is part of a broader global push by China's automotive manufacturers. Above, Sinotruk's Gold Prince truck.

The tie-up is the second-largest foreign investment in the Chinese automotive industry, according to Dealogic, and a step toward boosting Sinotruk's presence in Europe and other developed markets, its chairman Ma Chunji hopes.

"For our company, this is really a chance to catapult us into the first class globally," Mr. Ma said in an interview.

The Sinotruk-MAN deal is also part of a broader global push by China's automotive manufacturers, which in recent months have made bids on General Motors Corp.'s Saab, Hummer and Opel units, and Ford Motor Co.'s Volvo.

A decade ago, Sinotruk was a near-bankrupt state-owned enterprise. Mr. Ma, who took over the company at the beginning of 2001, assembled a young team of managers with an entrepreneurial mindset, cultivated ties with senior officials in Beijing and hired J.P. Morgan to map out a long-term game plan. That strategy included a Hong Kong initial public offering as well as a campaign to win Beijing's approval to register offshore, which allows Sinotruk greater flexibility.

Mr. Ma also emphasized overseas partnerships, linking up with an Austrian truckmaker to strengthen its technology and pairing up with Volvo in 2004 to form a Chinese joint-venture to assemble trucks.

However, both sides say the Volvo-Sinotruk venture, which focused on assembly, not manufacturing or development, ended up a disappointment; they are in the process of dissolving the partnership.

Before last week's deal, Mr. Ma had looked at other options for a tie-up with MAN. Armed with a sizable war chest after raising US$1.2 billion in a 2007 Hong Kong public listing, the chairman even briefly considered purchasing parts of the German company. MAN declined to comment on the specifics of the negotiations, calling the final deal an ideal arrangement that meets the needs of both companies.

Ultimately, Mr. Ma settled on last week's terms, which gives Sinotruk German technological know-how -- MAN played a role in inventing the diesel engine in the late 19th century -- without the regulatory hurdles or the difficulties of managing a sophisticated overseas operation.

The approach fits with the thinking among Chinese leaders who want companies to avoid making overly aggressive overseas acquisitions, said Sherry Liu, a vice-chairman of J.P. Morgan who advised Sinotruk and was heavily involved in structuring the deal. "The question is: can the Chinese company manage the assets after the acquisition?"

People involved in the deal said MAN initially sought a larger stake in Sinotruk, but eventually settled on the current structure, in which MAN will pay €560 million for a 25%-plus-one-share stake in Sinotruk. At the same time, Sinotruk will pay €85 million for an exclusive transfer of technology that will allow it to produce truck engines at a Euro V emission compliance level -- up from its current Euro III standard. In all, the transfer will help Sinotruk compress what Mr. Ma estimates is eight years' worth of research and development into a three-month transfer process.

Together, MAN and Sinotruk will cooperate to produce trucks and truck components, while working to develop a new midrange truck that they hope will bridge a gap between the two companies' lines of trucks. A merged global sales staff, Mr. Ma added, will be able to sell a wide spectrum of trucks, from the highest-end MAN trucks to lower-end Chinese machines.

Mr. Ma, 55 years old, says he hopes the stronger overseas push can help Sinotruk expand its reach around the world and help its brand find acceptance in Europe and other developed markets. Sinotruk, based in the northeastern province of Shandong, currently does most of its business in China, where models like its Gold Prince and Huanghe (Yellow River) Commander are popular.

Last year, nearly 20% of its sales were outside China, mostly to customers in Africa, Southeast Asia, the Middle East and the former Soviet Union. Mr. Ma wants to generate about a third of Sinotruk sales from outside China within five years. He also hopes to send his team to Germany for schooling in Western-style management.

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