Kuka Backs Takeover Bid by China’s Midea After Jobs Pledge

August 11, 2016

Germany’s Kuka AG gave its backing to a takeover offer by China’s Midea Group Co. that’s coming under close scrutiny from Germany’s political elite in return for assurances that jobs and plants will be protected until the end of 2023.

Midea also agreed not to pursue a domination agreement or de-listing of the Augsburg-based company, Kuka Chief Executive Officer Till Reuter said at a press conference on Wednesday. Kuka is talking to other potential investors that would be willing to take a stake alongside the Chinese as one way of limiting Midea’s stake, he said.

“We’ve taken into account all our stakeholders and the agreement protects the interests of our company, our business partners, our employees and our shareholders until well into the next decade,” Reuter said at a press conference in Munich. The agreement of 7 1/2 years “is much longer than the usual three to five years.”

With Midea on board, Kuka said it may beat a 2020 sales target by broadening the product range to tap the full extent of the Chinese market as well as expanding into household robots. In Germany, the prospect of Kuka falling into the hands of a Chinese buyer has prompted public intervention from leading politicians in Chancellor Angela Merkel’s government, which sought to craft an alternative bid from a European suitor, a foray that so far failed to result in rival offers.

Reuter reiterated Wednesday that the German company had not received any other bids apart from that of Midea. ABB CEO Ulrich Spiesshofer said last week that reports it will make an offer for Kuka are nothing but “pure speculation.” There’s no mechanism within the bidding process that allows either company to influence how many shares are tendered and Midea can’t be expected to re-sell shares at below the offer price, the CEO said. If more than 50 percent of shares are tendered, and no new investor comes forward, then Midea may end up with a majority.

Kuka added 0.5 percent to 107 euros as of 11:48 a.m. in Frankfurt trading. Kuka CEO Reuter said he will tender only half of the shares he owns. While the offer price is attractive, he also believes in Kuka’s potential, he said.

Midea, China’s biggest appliance manufacturer, is offering 115 euros a share — valuing the company’s equity at about 4.6 billion euros ($5.1 billion) — contingent on being able to increase its stake to at least 30 percent. The Chinese company has pledged to protect business partners’ data and such databases may not be moved to other locations and are protected against access by Midea or other third parties, it said. Midea will also keep the existing business strategy and maintain the executive board’s independence.

Kuka obtained fairness opinions from four banks, which, after examining the bid on the basis of their respective valuation models, concluded that the offered price is appropriate, the company said.

“Together with Midea, we’ll be able to implement our existing strategy even better,” Reuter said. “At the same time, we will remain a German company.”