Columnists

Who's next after Unocal, Maytag?

By John Dodge, Editor in Chief -- EDN, 8/4/2005

Successful or not, China's state-owned oil company's bid to acquire Unocal and Haier Group's same plan for Maytag will reverberate throughout the American industry. Such intentions have implications far beyond each individual transaction, should any come to pass.

At a philosophical level, the US rejection of Chinese takeovers would be extremely hypocritical. The admonition "be careful what you wish for" couldn't be more appropriate with respect to China, given how the United States tried to open up the world's most populous nation for decades. China is very open now—open to an unprecedented buying spree.

"If the market is such that Chinese companies are bidding for American companies, why not? I don't see how you can stop it unless there are national-security concerns. It's not any different from Japan's buying spree in the '70s and '80s," says Jim Williams, staff scientist at Linear Technology.

Hypothesize for a moment that China Integrated Circuit Design Corp Ltd comes after American high-tech-icon Texas Instruments (Link 1). Given China's $700 billion in cash reserves, the scenario is not that far-fetched, even though TI's market cap hovers around $35 billion. (For the sake of comparison, Intel's market cap is $160 billion, and Microsoft's is $270 billion.)

National-security concerns could easily come into play, because electronics form the core of most weapons systems. China's access to TI's myriad IP (intellectual property), enormous brainpower, and thousands of patents could come back to haunt the United States if hostilities ever ensue.

But think about it. Paying for IP—not to mention protecting it—would be a new game for the Chinese. Legitimate ownership of highly valuable IP in China is probably something the United States wants. As one news commentator recently noted, the value of pirated software and entertainment in China could wipe out the US trade imbalance—$56.7 billion through the first four months of this year (Link 2).

"It would also be interesting to see people pile out of a company they've bought. Chinese companies aren't used to a mobile work force," adds Williams. Indeed, core assets of any design company are its collective brilliance and knowledge.

The acquisition of TI or any other American electronics company could be just around the corner. It was once unimaginable that Lenovo could buy IBM's struggling PC business, but Lenovo did, although IBM's PC business was very much for sale.

Prevailing US and Chinese laws should allow the Unocal and Maytag episodes to reach their natural conclusions (Link 3). Here's hoping that these companies don't become political footballs, with each side trying to extract concessions that don't relate to the acquisitions; plenty of unresolved issues already exist between the two superpowers. China will eventually award third-generation licenses. The United States wants help with North Korea, and it also wants China to float the yuan on the open currency market. China wants Taiwan to rejoin the mainland. Human rights are always on the table.

Much has changed since I visited Beijing with my family in April 1999, just before a B2 bomber released a smart bomb on the Chinese embassy in Belgrade, Serbia (Link 4). Tiananmen Square was closed for a supposed makeover to commemorate the 50th anniversary of the communist takeover. We suspected that its closure was to avoid calling attention to the 10th anniversary of the Tiananmen uprising as well (Link 5).

That's all history. China now has only unbridled enthusiasm for taking its rightful position as an economic superpower.