China Loading Up with US Assets (DVN, SNP, NXY, CEO, CHK, CS, GS, C)

Updated

While M&A activity might be slower this year than it was last, there is one buyer that has picked up the pace. Actually, a number of buyers from one country: China. And their sights have been focused on the US.

For the first eight months of 2012, China has spent $7.8 billion on US acquisitions, including a $2.6 billion purchase of AMC Entertainment from a group of private equity firms and a $2.4 billion investment in Devon Energy Corp. (NYSE: DVN) by Sinopec, or China Petroleum & Chemical Corp. (NYSE: SNP). And then there's the $15 billion offer for Canada-based Nexen Inc. (NYSE: NXY) by Cnooc Ltd. (NYSE: CEO).

The US total could grow even bigger if ongoing negotiations between Chesapeake Energy Corp. (NYSE: CHK) and Sinopec come to fruition. Chesapeake is looking to sell it's Permian Basin assets for about $6 billion before the end of the year, and Sinopec is a leading candidate to be the buyer. Cnooc has also acquired about $3 billion in assets from Chesapeake over a number of years.

While Cnooc's deal for Nexen could run into serious political and regulatory opposition, investments in energy that are structured as minority stakes in a US company in exchange for capital funding have pretty much sailed through. That's why Cnooc's offer for Nexen came as something of a surprise. Cnooc was about to be denied to acquire US oil firm Unocal in 2005 before the company hastily withdrew its $20 billion offer.

There are other winners too. Investment banks that advise on these deals are able to escape to some degree the downturn in M&A. Credit Suisse (NYSE: CS) leads the big banks in involvement in Chinese purchases in the US, having worked on $5.1 billion worth of the purchases made so far this year. But it trails both Goldman Sachs Group Inc. (NYSE: GS) and Citigroup Inc. (NYSE: C) in overall China M&A, according to a report in the Financial Times.

A chain of movie houses is one thing; a producing oil field is quite another. And while energy assets, together with the access to technology like hydraulic fracturing, are China's bulls-eye, investments are much more likely to be waved through than outright acquisitions. The proposed deal for Nexen is the next big test case. If Cnooc is allowed to acquire the company, then Chinese purchases of US energy assets are likely to heat up even more.

Paul Ausick


Filed under: 24/7 Wall St. Wire, Banking & Finance, China, Commodities, International Markets, Mergers & Acquisitions, Oil & Gas, Politics Tagged: C, CEO, CHK, CS, DVN, GS, NXY, SNP

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