HONG KONG -- A unit of Hisense Group, a major home-electronics maker in China, has reached a deal to purchase a controlling stake in a Japanese auto parts company, pushing the subsidiary's shares up 10% in mainland trading on Tuesday.
Hisense Home Appliances Group, a subsidiary of Hisense Group, announced after the market closed on Monday a deal to buy a 75% stake in Sanden Holdings, saying it would pay 21.41 billion yen ($200 million) for newly issued shares at a steep discount of 256 yen each -- 44% below the closing price prior to the announcement and 40% lower than the one-month average.
The deal marks the second acquisition of a Japanese company for Hisense Group, as it seeks new sources of growth. Hisense Visual Technology, an audiovisual unit, in 2018 bought Toshiba's television business, including the Regza brand.
The state-owned Chinese company said it will fund the acquisition through internal resources. Its latest financial statement indicates that it sits on 1.464 billion yuan ($226.4 million) in cash and cash equivalents on a consolidated basis as of the end of September.
Hisense Home Appliances' shares, listed in Shenzhen and Hong Kong, soared on the news. Its stock price in Shenzhen jumped 10%, the daily trading limit, to close at 16.70 yuan on Tuesday. In Hong Kong, the company's shares closed up 6.3% at HK$13.44, after jumping more than 12% in early trading.
Investors' reaction in Tokyo stood in stark contrast to the surge in Shenzhen and Hong Kong. Sanden's shares plunged 17.3% to close at 383 yen, reflecting the discount of the new shares.
Sanden is a leading manufacturer of automotive air conditioning systems -- the second-largest auto air conditioner compressor maker in the world as of 2019, according to Hisense Home Appliances -- mainly supplying to Japanese and European car brands, including Volkswagen Group.
However, the Japanese company entered special turnaround proceedings last July after getting hit by shrinking auto sales -- exacerbated by the coronavirus pandemic -- and mounting investments to accommodate the electrification of automobiles, as well as accruing losses for pulling out from Iran under U.S. pressure.
Xiong Li, strategist at Daiwa Capital Markets in Hong Kong, told Nikkei Asia that investors responded positively to the deal because of Sanden's market position.
"Chinese retail investors are responsive to this type of news, and this means Hisense will join in the business involved with electric vehicles and connected cars," he said. "On top of that, the acquisition looks like a bargain for them."
The acquisition is pending various conditions, including Japanese government approval, but Hisense is positioning its purchase as a strategic move into the automotive sector.
Tang Yeguo, chairman of Hisense Home Appliances who doubles as vice president of its parent Hisense Group, said in a statement that he views Sanden "as the core company to expand into the automotive air-conditioning compressor and automotive air-conditioning industries."
Hisense Group is a household brand in the Chinese home-electronics market, holding competitive positions in products such as air conditioners, refrigerators and TVs, but it does not have a noticeable foothold in the auto sector, in which the rapid shift to electrification is opening up new opportunities for traditional electronics manufacturers.
Sanden's global brand awareness in the car industry -- with its technology and product offerings in new-generation electric compressors and integrated thermal management systems for electric vehicles -- will be instrumental as Hisense expands into the sector.
Sanden had been in a desperate position, seeking a sponsor to pull it out of its financial troubles. The company said it had received applications from a few candidates since last July when it entered restructuring proceedings -- a system under which companies submit filings to the Japanese Association of Turnaround Professionals -- but after due diligence, Hisense was the only remaining bidder.
Even though Hisense Home Appliances remained the only choice, Sanden's board said in a statement that the decision was justified as the Chinese company's proposal "matched the objective to rejuvenate our business and was reasonable."
Sanden intends to use two-thirds of the investment's proceeds for corporate restructuring purposes, while the remaining one-third will be invested in production facilities to manufacture heat-management systems for electric vehicles.
Zhou Houjian, chairman of Hisense Group, told Nikkei shortly after closing its deal with Toshiba three years ago that he was continuing to seek opportunities with Japanese companies.
"Of course, it includes acquisitions," Zhou said at that time. "I understand Japan relatively well, as I have been to Japan more than 100 times. I must say the cooperation between Hisense and Japan has a very long history."