Carlyle ends attempt to invest in Chinese construction equipment maker; bid stirred outcry

Wed, Jul 23 08:45 AM

BEIJING (AP) _ U.S. private equity firm Carlyle Group's bid to invest in a Chinese construction equipment maker has ended without a purchase, the Chinese company said Wednesday, following multiyear talks that stirred nationalist opposition. Carlyle's bid for Xugong Group was closely watched amid U.S. government warnings about possible Chinese protectionist sentiment.

China's government stepped up scrutiny of foreign acquisitions following the Carlyle bid and enacted a rule last year requiring a national security review of such deals. Agreements under which Carlyle and Xugong discussed first a takeover and then a minority investment have expired, Xugong said in a statement released through China's Shenzhen Stock Exchange.

Xugong said it would no longer pursue a deal with Carlyle. The statement gave no explanation of why the deal was never completed and a Carlyle spokeswoman did not immediately return a phone call.

Carlyle tried to buy Xugong in 2005, offering US$375 million for 85 percent of the company. Xugong said it wanted the investment in order to grow in a market dominated by U.S.-based Caterpillar Inc.

and Japan's Komatsu Ltd. The government of the eastern Chinese city of Xuzhou, which owns Xugong, approved the deal.

But the bid sparked complaints about asset sales to foreigners. China is the world's leading destination for foreign investment but the takeover of existing companies is still unusual.

The outcry prompted Washington to express concern about the handling of such offers. Carlyle reduced the stake it wanted to 50 percent in 2006 and last year cut it further to 45 percent.

Carlyle is one of the world's largest private equity funds, with US$44 billion invested around the world in industries ranging from manufacturing and power generation to media and telecoms. After the uproar over the Carlyle bid, the Chinese government announced that makers of construction equipment must consult Beijing before selling large stakes to foreigners.

Senior Chinese officials reportedly held an unprecedented meeting in 2006 to decide how to proceed on the Xugong deal. U.S. officials have expressed concern that official Chinese support for foreign participation in the country's economy might be weakening now that the country has met its market-opening pledges to the World Trade Organization.

___ On the Net: Carlyle Group: www.carlyle.

com.

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