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“Geraci’s Plan:” how to manage Chinese take-overs

In these two short videos, I illustrate, in a very practical way, how to be able to attract productive investments from China and, at the same time, limit predatory take-overs. My vision is based on the fundamental difference that exists between take-overs of existing companies and investment operations in new productive capacity, called green-fields. Both are considered as investments but green-field investments bring new capital, create new jobs and have a positive impact on the territory. It is therefore essential that, during the negotiations with potential Chinese investors, we try to encourage green-field operations.

In the first video, I propose a shareholder structure that forces, as far as possible, the buyer to bring value to the acquired company, through a limitation of the share, which can be purchased in the first place. Only in subsequent periods, after verifying that the presence of the new shareholder has effectively contributed to creating new jobs and opening the Chinese market to the company’s products, only then it will be possible to increase the shareholding, an iterative process that seeks to simulate a green-field operation even when it is an existing business acquisition. In the end, I discuss a numerical example of an hypothetical FCA buyer.

The second video, instead, focuses on the financial structure that will be necessary so that the existing shareholder is not penalized by investment policies that discourage the acquisition operations of existing companies. It is clear that the interest of the country that wants to protect its local industrial fabric can come into conflict with the interest of the shareholder, a potential seller, who instead wants to cash in without worrying too much about the rest. And this is where the good part of financial engineering comes into play, which, through a combination of convertible debt with embedded options, guarantees that the seller still collects 100% of the value offered by the buyer.

As always happen, I had to simplify everything to concentrate it in a few minutes, but I hope the basic concepts are clear enough. Comments and suggestions are always welcome, in order to further improve the proposal.

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