Privately owned Sichuan Bohong Group has acquired Canadian auto parts maker Wescast Industries Inc at a price of around $245 million, a move analysts expect to bring the Sichuan-based company advanced expertise in auto parts manufacturing.
Under the deal announced Friday, Wescast shareholders will be entitled to receive $11.00 per share in cash. Sichuan Bohong will get sole ownership of the seven factories and one research center belonging to Wescast Industries.
Sichuan Bohong's acquisition of Wescast is another major overseas deal by a Chinese automaker after the privately owned Geely Group bought Swedish carmaker Volvo in 2010.
"The acquisition can help Wescast further expand in the Chinese market, while Bohong can take advantage of Wescast's distribution channel and its advanced expertise," said Jia Xinguang, an independent auto analyst.
Overseas acquisitions by Chinese auto parts companies have been growing as there is less political resistance to the purchase of an auto parts maker, Jia said, adding that there are few acquisition opportunities in the car making sector, compared with the auto parts sector.
Jia further noted that the overseas auto market has been shrinking amid the global economic gloom, and now is a good time for Chinese auto companies to seek acquisition opportunities abroad.
The economic downturn has also hurt the profits of Wescast Industries. It reported a net loss of $4.5 million in 2011, according to the company's annual report.
Wan Ge, an industry analyst with ChinaVenture Investment Consulting Group, said that despite the lower cost of acquiring a foreign company, overseas acquisitions still carry high risks.
Construction machinery maker Sany Group's 2.65 billion yuan ($415.41 million) acquisition of German company Putzmeister earlier this year had triggered employee strikes, even though Sany had promised that it would not lay off workers after the acquisition.
"It is not easy for companies to integrate with their acquisition targets, given different corporate cultures…And companies should be even more cautious about overseas moves if they are not in good financial condition," said Wan.
Bohong is financially supported by the China Development Bank to complete the deal. The company also said that it would not lay off workers in five years, according to scol.com, a local news portal.
Wan said that although the growth of overseas acquisitions in the manufacturing sector is slowing down, the number of big deals is expected to rise this year.
Wescast Industries, which has a history of more than 100 years, is a leading supplier of cast exhaust manifolds for passenger cars and light trucks, while Bohong engages in automobile manufacturing and trading, real estate and new energy.