The Futility of Hostile Takeovers in China

Abstract

China’s emerging hostile takeover market has become the darling of the international business world. Following wave after wave of unsolicited takeover bids over the past five years, pundits have been eagerly predicting a tsunami of successful hostile takeovers to arrive any day now. The combination of takeover regulations modelled after the UK, depressed share prices following the 2015 stock market crash, and cash-rich insurance companies eagerly looking for vulnerable targets should have made a booming hostile takeover market a foregone conclusion.
But China’s hostile takeover market remains a mirage. Few hostile bids have ever succeeded, and China’s market for corporate control is littered with high-profile failures, such as Baoneng’s unsuccessful takeover attempt of Vanke in 2016. We argue that notwithstanding optimism from pundits and investors, it is the futility – and not success – of hostile takeovers that is inevitable in China. The confluence of idiosyncratic local factors, such as China’s state-dominated controlling shareholder environment, institutional reluctance to enforce takeover regulations to facilitate takeovers, and government intervention at both central and local levels, render a successful hostile takeover improbable. China is a cautionary tale to those who would predict hostile takeovers only with reference to financial indicators or over-generalization of the Anglo-American experience without a full appreciation of China’s unique domestic regulatory and political environment.

Keywords: futility, hostile takeover, defensive measures, China