CHINA'S Xinmao Group dropped its audacious 1 billion euro (US$1.3 billion) cash bid for Dutch cable maker Draka yesterday, leaving Italy's Prysmian free to seal a lower-priced deal and form an industry leader.
Xinmao's attempt to grab a slice of the fiber optic cable market by buying an overseas company had been seen as a test of the ability of Chinese companies to complete such acquisitions.
But Xinmao, which gatecrashed Prysmian's agreed 830-million-euro cash and share takeover of Draka in November, said it would be unable to launch its bid before Prysmian's offer closed.
"Xinmao has after careful consideration regretfully concluded that its intended offer for Draka is no longer feasible," the Chinese group said in a statement.
The group had faced an uphill battle to launch its offer in time as it waited for Chinese government approval for the move. Prysmian's offer, launched yesterday, is due to close on February 3 - 10 days before Xinmao had said it would be able to put its bid to Draka shareholders, including key investor Flint Beheer, a family-run fund which controls 48.5 percent of Draka.
Prysmian said it was now confident of success.
"It was basically going to be very difficult process for Xinmao ... What they need to learn here is that they need to move faster and get Chinese approvals before and not after the fact," SNS Securities analyst Martijn den Drijver said.
Draka spokesman Michael Bosman said the company had noted Xinmao's statement and "will move forward with Prysmian".
He added that since French cable industry leader Nexans' initial approach to Draka on October 18 and Prysmian's offer for the Dutch company on November 22, there had been plenty of time for Xinmao to prepare its offer.
"We have done our fiduciary responsibility. We have cooperated with Xinmao and Prysmian and as we have stated yesterday ... there was enough time for Xinmao to arrange approval and financing," Bosman added.
Draka had questioned Xinmao's ability to finance its 20.5 euros per share offer, although the Chinese firm had maintained it had funding in place from a Chinese bank.
Kempen Capital Management said it would talk to Prysmian about selling its preference shares, which amount to 5.19 percent of Draka's total outstanding capital.
"Prysmian shares are now getting a boost, which is logical. The threat of a higher offer, partly in shares, has gone away," Joop Witteveen, head of Dutch small cap investments at Kempen, said.