Hainan Airline Group is a radical buyer - In detail report of their last purchases.

HNA GROUP Headquarters -

Last December 19, announced jointly by both parties, Ingram Micro (IMI) officially joined the Hainan Airlines Group (HNA Group). The two companies will achieve a closer cooperation, dedicated to bring the global leading mode of service trade, and supply chain management technology into China, to construct networks of domestic e-commerce and logistics industry and global supply chain, and finally to improve the transformation and upgrading of China's logistics industry. This is a $ 6 billion acquisition, for HNA, it added another asset into its fortune which is distributed in more than a dozen countries all over the world.

According to the 2016 "Fortune" world top 500 ranking, HNA Group ranked No. 353 on the list, while IMI ranked No. 218. HNA Group's A-share listed company Tianhai Investment purchased 100% share of IMI. This transaction is completed in cash, settled in December 5, 2016 (US Eastern time).

In fact, this "snake swallow like" acquisition is only one of several major foreign acquisitions conducted by HNA in the past two years.

With the announcement of Chinese national initiative " One belt one road", the pace of overseas mergers and acquisitions (M&A) of Chinese enterprises was ferocious and unstoppable between 2015 and 2016. As one of the typical examples, HNA Group is ahead of other offshore enterprises in the number and price of transactions. But, from the perspective of transaction premium and distribution of risks in the transaction files, the expansion of HNA seems to be a little radical, even other typical examples like Chem China or Anbang can not match.

"After our 1 year and 18 days of day and night, no time difference hard work, we have achieved the success of today's cooperation." Tan Xiangdong, HNA Group's president says about this acquisition, rather emotionally.

They are all saying that HNA is a radical buyer.

"I was dressing just like this when I signed the papers on behalf of HNA with IMI on January 17 in Los Angeles. I haven’t changed my outfits in a long time. I stored all of them, and, today I put them on again. I’m thrilled." He says. What Tan Xiangdong mentioned here, is the agreement and plan of consolidation with conditions of the entry into force, signed by HNA Group, GCL and IMI in February 17, 2016 (New York time).

According to the agreement, the transaction will be implemented through the consolidation of GCL and IMI. After the consolidation GCL will cease to exist, and IMI will be the main body as the company's holding subsidiary. All the common shares issued by IMI (as of May 18, 2016, the amount of common shares issued by IMI is 148,522,726) will be canceled, the former stock incentive plan will be terminated and canceled accordingly. The former equity holders of IMI received 38.90/share dollars in cash. The holder of the former stock incentive plan will be paid accordingly. The deal traded at approximately 6.09 billion dollars, thereinto the total value of IMI's common stocks is approximately 5.778 billion, and the reimbursement of the company's stock incentive plan is approximately 231 million.

The purchasing funds came from the company's own funds, joint investments and bank loans. 30% of the equity funds consist of 8.7 billion yuan from Tianhai's own investment funds, and 4 billion yuan invested by Kuo Hua Life Insurance. The remaining 70% is provided by bank annexation loan. This loan is provided by a syndication led by the Agricultural Bank of China, other participants include Bank of China, the China Everbright Bank, East West Bank, the National Bank of India,etc. In order to implement this asset restructuring, Tianhai investment established the overseas purchase subject GCL. After the consolidation GCL will be ceased to exist, and IMI will be the main body as the company's holding subsidiary.

It is not difficult to see that, the business links involved are very complicated, and to a certain extent, the associated subjects are also showing the HNA’s determination to reach a deal.

It is noteworthy that, amongst the conditions of reverse breakup fee payment which were decided in the agreement and plan of consolidation, according to the agreement between the two parties, in addition to the failure of obtaining approval on the Tianhai investment’s shareholders meeting, or failure of depositing the relevant amount in the custody account within the specified time, HNA also needed to take all the risks of governmental approvals, that is, disapproval of US National Security Review (CFIUS), disapproval of Chinese government, the failure of passing foreign antitrust approvals, the refusal to deliver due to disapproval of the Shanghai Stock Exchange. If any of these approvals were not be obtained, or HNA Group failed to accept governmental approval conditions, it would have to pay 400 million dollars to IMI, and the reverse split fee will be 6.67% of the purchase price. No doubt that there are certain risks.

In contrast, Chem China’s acquisition of Syngenta only has to bear the risks of Chinese governmental approval and antitrust approval; its acquisition of the Pirelli does not have to bear the reverse breakup costs. The reverse breakup fee of Anbang’s acquisition of the Fidelity & Guaranty Life does not link to any governmental approval either.

"They are all saying that HNA is a radical buyer." Zhang Weihua, the former Project Management Director of Law Department of China National Offshore Oil Corporation, participated in overseas M&A transactions for more than ten years. In his eyes, "radical" is not always a derogatory term. It refers to the positive trading attitude which means willing to take more risks on the basis of business decisions, based on the overall evaluation of risks.

"After all, in order to win the girl's heart, the strength of your competitors is also an important factor other than your own strength. Similarly, in essence, winning the transaction has nothing to do with how much your bid is or how many risks you are willing to bear. It is related to how much your opponents are willing to pay and how many risks they are willing to bear." Zhang says.

He also reminds that, in the past processes of Chinese enterprises’ overseas M&A transactions, the link between reverse breakup fees and the US governmental national security approval were rather rare. In the context of Chinese capital influx in United States over the past two years, more and more US sellers have asked Chinese buyers to bear the risk of US national security approvals, and the link between reverse breakup fees and CFIUS approval seems to have gradually became the market practice. Careful negotiations and communications are needed for Chinese buyers in the cross-border M&A transactions.

"The agreement was signed on February 17, 2016, and the change of registration of shareholders was completed under the laws of Delaware on December 5. It marks the acquisition project of Tianhai purchasing IMI was successfully completed through 10 months of efforts. This cross-border acquisition involves listed companies procedures and regulatory requirements of both China and United States, and a load of other approval matters. The antitrust approval alone has passed through 11 countries and 13 regulatory institutions. "Tong Fu, the standing vice chairman and CEO of HNA Logistics Group recalls.

On August 23, 2016, Tianhai Investment announced that the transaction has completed all the declaring reviewing of antitrust in China, United States, South Africa, India, Brazil, Turkey, Canada, Mexico, Austria, Italy, Poland and Slovakia, etc., and passed all the investigations.

"In fact, we don’t have too much of antitrust problems. Even we are the first or the second in almost every market we serve, we are not the only competitor. And, IMI is clean, they suffered from no legal case." Dale Laurance, the former chairman of the board and the current chairman of Review committee, told a reporter from "Chinese Entrepreneur".

The good news for those who keep their minds hanging came in the evening of November 2. At that night, Tianhai investment announced that the acquisition of IMI passed through CFIUS. This means that the biggest uncertainty about the acquisition has been completely eliminated. Since then, the two parties of the transaction are able to complete the delivery.

Logistics global supply chain

"Today is a milestone for IMI, which has a history of 37 years of development. Shanghai is our operating center since IMI expanded its businesses to China." Dale Laurance and his assistant Michael Zilis, the International Executive Vice President and Asia Pacific President, are very excited.

Unlike the courtesies of Chinese executives and their early departure, these two were chatting cheerfully with participants of the meeting, accompanied by music and wine.

What kind of company is this, so that it makes HNA to launch such a radical strategy? IMI was founded in 1979, registered in the state of Delaware, to be listed in NYSE in 1996. Its headquarter located in Irvine, California, US. It is a leading provider of traditional IT products distribution and supply chain comprehensive services. In 2015 fiscal year, IMI's international operating income was $ 43 billion, ranked No. 218 in the Fortune 500 of 2016 and No.64 in the US top 500.

IMI is the only information technology distributor whose network spreads all over major countries and regions of the world. It has five strategic regions: North America, Europe, Latin America, Asia-Pacific region, Middle East and Africa. The company is currently operating in more than 160 countries worldwide, established cooperative relationships with more than 1,800 manufacturers, including HP, Apple, etc., providing goods and services for nearly 200,000 dealers. In contrast, its major competitors, Tech Data, Synnex, Arrow and Avnet are focusing on the European and American markets. However, to a certain extent, this has increased the complexity of antitrust review of the acquisition of IMI.

The company's main business is divided into four segments, namely, IT product distribution and technology solutions, mobile equipment and life cycle services, e-commerce supply chain solutions and cloud services. "As we all know, HNA Logistics is one of the core industries of HNA Group. Ultimately, we provide our customers with an ecological body, that consists of logistics, capital flow and information flow. This positioning formed a very effective interaction with the four main businesses of IMI. We can provide each other the most effective resources." Tong Fu says about the M&A.

In recent years, the overall development of IT supply chain services industry forced IMI to make some adjustments. According to international data (IDC)’s statistics and forecasts, the global IT spending will fall from 4.91% in 2014~2015 to 2.91% in 2015~2019.

Under this circumstance, the performance of IMI is also declining. Financial results show that, in 2015 the company’s operating income is 34.026 billion dollars, down 7.45% over 2014. The net profit is 215 million yuan, down 19.34% over 2014, and 30.74% over 2013. Nevertheless, the revenue scale of IMI is still the largest in the industry, 1.5 times that of second Avnet and third Technical Data. But its profitability is slightly lower than its peers. The net profit ratio of IMI is only 0.5%, by contrast, the net profit ratio of Avnet is 2%, and 1% for Technical Data. The return on equality (ROE) is only 9.4%, 4% lower than Avnet .

In sharp contrast with the global market slowdown, the Chinese market keeps growing rapidly. According to Gartner statistics, China's IT spending in 2015 reached 1.06 trillion yuan, increased about 9.14%, higher than the global IT spending growth of 4.9%. At the RMB exchange rate against US dollars of 6.4936 yuan on December 31st, 2015, China's IT spending is $ 0.16 trillion in 2015, accounting for 7.42% of the total IT spending of the world. The rapid growth of IT spending led to the rapid development of IT distribution industry. The proportion of China's IT distribution market in the global IT distribution market is increasing significantly.

However, the progress in China is not very smooth. "We are the first or second in every market we serve, and although we have an important business in China, we are currently ranked fourth." Dale Laurance says, rather depressed.

As early as 1997, IMI expanded its business to China, and once became the second largest IT distributor. But in recent years, due to lack of investment in innovation and localization, the growth momentum was significantly less than its main competitors, its sales revenue fell behind Digital China, Synnex, and ECS holdings.

"With the support of HNA Group, our market share in China will increase rapidly, and we will become a market leader. The holding of Chinese companies will make it easier for us to do business in Chinese market, and we will be more aggressive." Michael Zilis told the "Chinese Entrepreneur" reporter, in the future, IMI will seek for cooperation with Chinese companies like Miui, Huawei, so that they can do better in the foreign markets, and also allow more foreign companies to enter Chinese market.

"What is perhaps the most valued by HNA is the powerful supply chain management capability of IMI." An industry expert said previously.

Tan Xiangdong agrees: "The modern logistics industry is the pillar industry of HNA Group, relying on the mature management model and the global channel system of IMI, HNA Group will greatly extend its logistics industry chain. It will also help the transformation and upgrading of China 's logistics industry.”

"The advantages of IMI just fits the needs of HNA’s logistics’ industrial layout. HNA Logistics can extend its logistics industrial chain, achieve the controlling of 'logistics + information flow + capital flow + business flow'. The business value behind it is immeasurable." Industrial Securities analyst Gong Li says.

Wang Liji, an senior researcher of IT distribution industry, says that with the HNA’s financial license, IMI are able to carry out a new supply chain financial business in China. In well-developed capital markets like Europe and North America, small and medium enterprises have easy accesses to financing, it makes IMI’s supply chain financial services useless. However, SME financing problems are relatively common in China. The supply chain financial business has a bright prospect, and a tremendous development space.

Become an international super buyer

"The transaction of Chem China buying Syngenta for 43 billion dollars, or the transaction of HNA buying IMI suggests that, Chinese enterprises’ overseas acquisitions have evolved to the phrase of buying so-called "national champions" and the world's top 500 enterprises. One can not help but think of 20 years ago, the historical phase in which Chinese enterprises began to go overseas with small transactions to 'test the water'. The current pace of Chinese enterprises is so vigorous and intense.” HNA’s several large-scale overseas acquisitions in the recent two years caught Zhang Weihua’s attention. He is a so-called “old driver” in overseas M&A transactions field.

In 2015, HNA accomplished two large scale overseas acquisitions. First, its listed company Bohai Leasing spent 2.5 billion dollars to buy the US-listed Irish aircraft leasing company Avolon. Secondly, HNA spent 2.73 billion Swiss francs (about 17.5 billion yuan) to buy Swissport, the largest supplier of air ground services and freight services in the world.

In 2016, in addition to the acquisition of IMI, HNA also spent 1.5 billion dollars to buy Swiss aviation logistics services company Gategroup, 6.5 billion dollars to buy 25% of Hilton shares, and 10 billion dollarss to buy CIT’s aircraft leasing business. At the same time, there are a number of relatively smaller acquisitions. HNA's strategy has been known as “radical”.

"Confronting with fierce competitions, we can not win the target company or target industry without a radical strategy. Although we often say that, if there are great risks, no M&A transaction can not be abandoned. But we shall not forget about this: if risks are under control, taking a more radical standing is not entirely undesirable. "Says Zhang Weihua.

In fact, there has always been an expansion gene in HNA. The chairman of HNA, Chen Feng recalled at the 20 anniversary theme meeting: "Years ago, our old governor gave me 10 million yuan to set up an airline in Hainan. I told the governor: you are actually doing me wrong. Even the wings of an aircraft cost more than 10 Million."The airline that started with 10 million yuan and “could not afford the wings" grew into an international financial holding group, ranked 353 in the top 500. On this journey, HNA experienced three crises.

“We are practicers of chairman Xi’s initiative ‘one belt one road’. And we are proud of our achievements.” In recent years, the strategic layout and related policy supports of ‘one belt, one road’ gave Tan Xiangdong the courage of ‘go out’. Integrating resources and forming global industrial layout through overseas M&A, has become a very important way for Chinese enterprises to explore their space of development, to achieve industrial transformation and upgrading and internationalization. According to Thomson Reuters, China's cross-border M&A transactions totaled 161.9 billion dollars in 2015, 61% up from 108 billion in 2014, thereinto 112.7 billion dollars of Chinese enterprises’ foreign acquisitions.

Yet, an M&A transaction is often just a start. "The marriage between two Global 500 enterprises will certainly face a lot of challenges. We will make a series of adjustments in the near future." An insider from HNA told the "Chinese entrepreneurs" reporter.

HNA made a lot of commitments, like the headquarter of IMI will remain in the state of California, management and employees will be retained, the business model and culture of IMI will be preserved, the staff will have more opportunities to develop their careers in HNA Group. However, there are many differences between the two companies in terms of laws and regulations, accounting and taxing systems, business practices, business ideas, corporate cultures. These differences will raise a series of challenges for the integration of corporate cultures, resources managements, market developments and other aspects. Accompanied by challenges, there will be risks of talent loss, performance declining , goodwill impairments, etc.

However, these are not serious problems for the the real protagonist of this acquisition, Tianhai investment. After all, during the current downturn of both Chinese and global shipping markets, American company GMI, the Danish shipping company Copenship, Daebo International Shipping from South Korea and many other shipping companies have declared bankruptcy. To be alive, and still able to transform, is already being lucky. In the case of a giant like HNA, the international super buyer aspect will draw more and more attentions.

66.7 billion yuan in cash to buy a NYSE listed company

The transaction of 66.7 billion in cash to buy NYSE listed company CIT's commercial flight leasing business, promoted to third largest aircraft leasing company, ranked only second to GECAS and AerCap. The stock-trading operators are GF Securities and Great Wall Securities.

On December 9, 2016, Bohai Financial Investment Holding announced that, the corporation and its wholly-owned subsidiary Avolon, and Avolon’s wholly-owned subsidiary Park, signed the Purchase and Disposal Agreement with CIT and its wholly-owned subsidiary CIT Leasing, to buy the NYSE listed company, CIT’s commercial aircraft leasing business in cash. The specific way is that, to acquire 100% shares of C2 which held by CIT Leasing.

As of June 30, 2016, the book value of C2’s net assets worth 6.916 billion dollars. The transaction price of acquiring 100% shares of C2 is approximately 9.995 billion dollars (equivalent to 66.746 billion yuan), the adjusted net assets premium is about 6.70%. The final transaction price is based on the ways agreed in Purchase and Disposal Agreement of adjusting C2's net assets up to the date of delivery, and fixed by the adjusted net assets value plus fixed premium of $ 627,491,703. The purchasing funds of the transaction are consist of the corporation's own funds, bank loans and a loan less than 8.5 billion from offshore banks, Morgan Stanley and UBS. According to a simple estimating of transaction amount, the proportion of leveraged buyout is close to 6 times.

The total assets, operating income and net assets of the object are all exceeded 50% of the corresponding target of the listed companies in 2015. Therefore, according to article 12 of the Measures for the Administration of Major Assets Reorganization of Listed Companies, the transaction constitutes a major assets reorganization. Since issuing shares is not involved, it does not constitute a backdoor listing. The controlling shareholder, HNA’s 34.56% shares remain unchanged, and its 52.35% shares holding with persons-acting-in-concert, Yanshan Fund, Shenzhen Xing Hang, and Tianjin Tong Wan remain unchanged, too.

The seller, CIT Group, a US bank holding company, is now a listed company in NYSE. Founded in New York in 1908, a Top 500 company with more than $ 6 billion financial and leasing assets, specializing in corporate finance, trade finance, transportation finance and vendor finance. The group is headquartered in New York City, a member of the S & P 500. The CIT Bank, operated by CIT Group, is a full-service bank located in Utah, within the jurisdiction of Utah's financial institutions and FDIC, operating in more than 50 countries. As a result of government bailout and debt restructuring failures, CIT Group filed for bankruptcy protection on November 1, 2009.

How much is the profit of CIT’s commercial aircraft rental business ?

CIT Group's commercial aircraft leasing business has always been a global leader. As one of the first batch of enterprises who provide operating leasing services for airlines, CIT Group has a profound industrial background and nearly 40 years of experiences of providing financial services for commercial aviation, established good collaborative relationships with more than 100 airlines in more than 49 countries and regions, including world-renowned airlines like American Airlines, Delta Airline, Garuda Indonesia, Qantas Airway, Virgin Blue Airline, etc.

CIT intends to separate the commercial aircraft leasing business and set up a new company, C2, to undertake all businesses. Based on tax planning, the specific delivery is divided into two steps, the first step is "Canadian delivery", that is, 100% shares of CIT ULC which is held by C2 shall be delivered in the first place, and C2’s wholly owned subsidiary Dutch BVC2 transfers its 100 % shares of CIT ULC to Park’s subsidiary, Alberta; the second step is "C2 company delivery", after the completion of "Canadian delivery", CIT Leasing will transfer its 100% shares of C2 company to Park.

Before the delivery, CIT will complete the internal reorganization of commercial aircraft leasing business, that is, CIT’s commercial aircraft leasing business into C2.

After the completion of reorganization, all assets of object will be transfered to Avolon’s subsidiary, Park. At present, CIT’s commercial aircraft leasing business has not yet fully injected into C2 company. According to C2's audited financial data in 2015, C2 achieved operating income of 1.19 billion dollars and net profit of 386 million dollars. The company has a large revenue scale and favorable profitability.

Listed companies believe that, after the transaction is completed, Bohai Financial Investment Holding’s aircraft leasing business will be further enhanced, its business scale and market share will be further increased. In 2012, the company stepped into the field of international aircraft leasing for the first time by acquiring HKAC. In 2015, the company suggested the development strategy of "based on leasing industry, building diversified financial holding group". In January, 2016, the company completed the acquisition of Avolon, a leading aircraft leasing company, acquired a higher position in the field. In August, 2016, the company signed aircraft purchasing agreement with GECAS, acquired 45 aircraft leasing assets along with the lease; then, the company is planning to buy 12 SPV affiliated to HKAC and few of the rest interests, in order to further strengthen the company's layout in the aircraft leasing industry. According to Flightglobal's ranking at the end of 2015, the company will become the world's third largest aircraft leasing company after GECAS and AerCap, if the the transaction completed. The market position and share of the company in global aircraft leasing will be further increased.