Citc Securities is set to buy Crédit Agricole’s Hong Kong-based brokerage in a $1.25bn deal that has taken more than two years to negotiate in what would be the first acquisition of a foreign securities house by a Chinese institution.
The deal sees Citic take a near 20 per cent stake in CLSA for $310m in cash with a follow on agreement for the Chinese group to buy the remaining 80 per cent for $941m subject to the approval of regulators and CLSA staff, the two companies said.
The French bank is also poised to sell its Cheuvreux Securities business in Europe to independent brokerage Kepler as it struggles to raise cash to help deal with billions of euros of losses it faces on its exposure to Greece through its Emporiki subsidiary, one of the county’s top ten banks.
For Citic the deal will bring a vastly improved distribution network through which to sell equity and raise capital overseas for its Chinese clients.
Jonathan Slone, chief executive of CLSA, which is well known in Asia for its biting independent stock research, said the company would maintain its character under Chinese ownership. “Having Citic as a shareholder will allow CLSA to broaden our product offering and global expertise while maintaining our unique and successful position as a content driven independent agency broker,” he said.
The two companies added that they had signed a management agreement that would ensure CLSA’s ability to operate on its own terms.
Its independence meant it was one of the only research houses able to publish opinions on the proposed deal for Prudential of the UK to take over AIA, the pan-Asian life insurance business formerly owned by AIG during the UK group’s long and ultimately unsuccessful bid in 2010. Every other investment bank was tied up with a role of some kind on one or other side of that deal.
Concerns among staff about the effect of Chinese ownership are one of the things that have held up the deal for so long, according to people familiar with the company.
The two sides first began discussing a combination of their businesses in March 2010 and have gone on to launch a number of partnership initiatives since then. A deal for Citic to take over CLSA had been expected to be concluded earlier this year.
CLSA has itself been struggling in the dire equity markets of the first half of this year, which have seen extremely low trading volumes in markets such as Hong Kong and a number of high profile initial public offerings being cancelled by both Chinese and overseas companies.
Graff Diamonds of the UK pulled its listing in May and Sany Heavy
cancelled its long planned IPO on Friday. The brokerage announced a wave of redundancies recently and is expected to get rid of up to 20 per cent of its staff.
Wang Dongming, chairman of Citic Securities, said the investment would increase the products from within China that his group was able to offer to international clients and to investment clients in mainland China.
M&A bankers say there are a number of potential deals in the pipeline for Chinese companies to exploit the difficulties of many rivals in Europe, but that price expectations of European sellers are holding many of these up as executives wait for a resolution to the financial crisis.
Crédit Agricole shares finished trading on Friday down 6.4 per cent at €3.21.