Fosun, Tencent Eye Gas Stations

Aug.20.14 | About: Fosun International, (FOSUF)

Gas stations were never that attractive to me as an investment, but a group of major firms seem to think differently as oil refining giant Sinopec (SHI, HKEx: 386; Shanghai: 600028) gets set to sell up to 30 percent of its retail arm. That's my conclusion, following reports that domestic investment giant Fosun (OTCPK:FOSUF, HKEx: 656) and Internet leader Tencent (OTCPK:TCEHY, HKEx: 700), and Canadian retailer Alimentation Couche-Tard (OTCPK:ANCUF, Toronto: ATDb) are among the finalists bidding for a stake in the Sinopec unit. In separate headlines, the acquisitive Fosun is also reportedly in talks for another mega deal that would see it purchase the US unit of global insurance giant Swiss Re (OTCPK:SSREF, Switzerland: SREX).

There's no common thread in these 2 stories, except that both are quite large M&A deals involving one or more Chinese bidders. That reflects the fact that Chinese firms are becoming increasingly assertive as investors both at home and abroad, striking a growing number of deals as strategic acquirers and investment buyers. Among those, Fosun has been one of the most aggressive, buying major stakes in such big-name firms as resort operator Club Med (OTC:CLMDF, Paris: CLM) and Portuguese insurance giant Caixa Geral de Depositos.

Let's begin with the Sinopec deal, which began to take shape earlier this year as part of Beijing's pilot program to introduce more private capital into big state-run firms. Sinopec was selected to become the first company in that program, with an aim of selling up to 30 percent of its Sinopec Sales retail arm, which operates 30,000 gas stations and 23,000 convenience stores throughout China. A deal is expected to be worth up to $16 billion.

According to the new reports, Sinopec has narrowed the list of finalist bidders to a group that includes the 3 names above, along with a group of other mostly domestic names (English article). Those run the range from leading insurer China Life (LFC, HKEx: 2628; Shanghai: 601628) to investment firms Hopu and Hong Kong-listed ENN Energy (OTC:XNGSF, HKEx: 2688), which once teamed with Sinopec in a failed hostile takeover bid for a gas pipeline operator.

To me, the biggest surprise is Tencent's name as a bidder, since the Internet giant has never strayed this far from its core online businesses. Perhaps Tencent is interested in the unit's huge network of retail outlets, which could become a key component for speedier deliveries as it builds up an e-commerce partnership with recently listed giant (NASDAQ:JD). The reports say Sinopec is aiming to close the deal by year-end, so we'll have to wait a few months to see who wins.

Next, let's look at the other Fosun news, which has the company in talks for a deal that would see it pay $400-$500 million for Aurora, the US arm of Swiss Re (English article). The Swiss insurance giant began shopping its US unit last year, and other interested parties include another insurer, Wilton Re Holdings.

Fosun has previously said that insurance is one of its main focus areas, and last year, it paid 1 billion euros ($1.3 billion) for 80 percent of Portugal's Caixa Geral. Fosun also has a life insurance venture in China with Prudential Financial (NYSE:PRU), and made headlines earlier this week with its purchase of 20 percent of another insurance company, Ironshore, reportedly for nearly $500 million (English article).

The underlying story beneath these latest M&A deals is that Chinese firms are quickly becoming a serious group of investors, with billions of dollars to spend on acquisitions both at home and abroad. That means we could see these aggressive companies closing a growing number of deals on the global stage over the next 1-2 years, especially as many European companies sit on the sidelines due to their sluggish home economies.

Bottom line: Chinese firms like Fosun are becoming increasingly sophisticated as buyers of major assets, and will close a growing number of mega deals both at home and abroad over the next 1-2 years.

Disclosure: None.

Editor's Note: This article discusses one or more securities that do not trade on a major U.S. exchange. Please be aware of the risks associated with these stocks.