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August 21, 2009 2:09 PM

Vinson & Elkins on China's Biggest Foreign Acquisition Ever

Posted by Julie Triedman

On Tuesday, Sinopec, China's state-owned oil and gas company, completed its takeover of Canada's Addax Petroleum, which we reported on back in June, thereby obtaining oil reserves in Africa and the Middle East. The $7.2 billion deal is China's largest acquisition of a foreign company, and a clear sign, Vinson & Elkins' Paul Deemer says, that the country's state-owned oil companies are ramping up their dealmaking efforts. Picture 1

For Deemer, a longtime China deals partner, and colleague David Blumental, the Addax deal was the second major oil and gas deal their team has handled for Sinopec in the past year. At the height of the financial crisis last September, Deemer and China practice head Xiao Yong helped Sinopec take over another Canadian energy company, Tanganyika Oil, for $1.9 billion.

How does the current deals environment in China compare with elsewhere right now?

A year ago, in the darkest days of the financial crisis, we expected to see a major drop-off in deals, particularly around the Chinese New Year. It didn't happen. In fact, since then, Chinese M&A activity in the energy and minerals areas has been comparable to previous years. And it continues to grow.

What do the recent deals you've done for Sinopec say about the dealmaking climate in China?

Both show how very determined the Chinese are to acquire oil and gas and mineral resources. The Chinese have the cash to buy companies, and they have a clear idea of what they're trying to do. They see international opportunities and they go for them. They're focused, and they're organized. 

How is deals work different in China than in other countries?

The Chinese are very personal-relationship oriented, particularly with their choice of advisers. They are more straightforward in the way they negotiate. The language barrier of course is always a factor. Also, the deals tend to be very global. Here we had a Chinese company acquiring a dual-listed Canada-UK company based in Geneva, with major operations in the Kurdish region of Iraq and in West Africa. It's a little like being a conductor in an orchestra, where half the musicians are speaking different languages.

Are Chinese companies winning international battles to acquire oil and gas assets?

In the past few years, Chinese companies have had more success in acquiring assets around the globe. They now compete day in and day out with the major international oil companies.

In the past several years, dozens of firms have opened up shop in Mainland China. Is the legal market overcrowded now?

There may be a shakeout because of the large number of firms out here. The key is being able to focus on one area, whether it's IPOs, IP or oil and gas.  It's still possible to be successful here but it's definitely a long-term play. The key is to get to know people and to make friends. And you certainly need to have people with language ability and cultural sensitivity. More and more, Chinese companies expect their legal advisers to communicate in Chinese.

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