Magazine for Senior Financial Executives: Shanghai surprises – International Deals

Shanghai surprises – International Deals – Huayi Group becomes first Chinese state-owned company to buy controlling interest in U.S. based company with acquisition of Moltech Power Systems Inc

Joanne Ramos

A SMALL PIECE OF HISTORY was made in New York City this past fall. On October 21, the Huayi Group, a Shanghai-based conglomerate, inked a deal to buy tiny Moltech Power Systems Inc., of Gainesville, Fla., marking the first time a Chinese state-owned company has acquired a controlling interest in a U.S.-based business.

Huyai’s $20 million offer to buy Moltech out of bankruptcy was the most attractive of several offers for the company, according to Martin Higgins, Moltech’s CEO. With its proprietary technology for long-lasting, lightweight, “high-drain-rate” batteries, Moltech made an attractive candidate for Huayi, which has its eyes on the electric-bicycle market in China.

For Higgins, the acquisition by Huayi marked the end of along, difficult road. When he joined the company in early 2001, it was on the verge of collapse, and filed for bankruptcy protection in May of that year. By the following fall, though, Higgins had turned the company around–but it still needed volume to be profitable. Enter Huayi, which was introduced to Moltech by Business Data International Ltd., a firm that facilitated the deal by providing advice, translation services, and support.

Huayi, which was initially interested in buying just a subset of Moltech’s business, decided to buy the entire company after getting to know management and seeing firsthand the company’s lean operation. The match made sense: Moltech had excess capacity that could be transferred to Shanghai, giving the company manufacturing platforms on three continents, and Huayi would get Moltech’s technology plus full control over the rechargeable batteries that are integral to the quality of an electric bike. The deal also gave Huayi some intangible benefits, such as a foothold in the United States.

Does this deal signal a trend? Denis McCusker, a partner at Bryan Cave LLP, Huayi’s law firm, thinks so. “With China’s accession into the [World Trade Organization] and a focus on reforming China’s state companies, this type of transaction will become increasingly common.” He notes that the one stumbling block in the deal, the conversion of Chinese currency into U.S. dollars, was difficult only because it required a license from the Chinese government. The Moltech deal created a template–and paved the way. “The next one won’t be so tough.

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