The Simple Equation Behind China’s Big Pig Deal

Chinese Shuanghui’s $4.7 billion acquisition of American Smithfield Foods is a big deal. First, it is the largest Chinese take-over of an American company to date. That’s important. Second, it reveals the simple equation by which large Chinese companies can become true multinationals, which is:

C + E + B + BE = Chinese Multinational

More on this in a moment. First, it is worth noting how confused the discussion of the big pig deal has been. Commentary has been all over the map.

  • Smithfield Food has stated the deal will increase their exports to China. Probably true.
  • The New York Times described this as a supplier deal (Needing Pork, China is to Buy a US Supplier). Not really.
  • Shuanghui’s CEO has said Smithfield’s expertise will be used to modernize its operations (and China’s agricultural supply chain). This is definitely true.
  • Virginia government officials are worried American jobs will be lost as Shuanghui moves Smithfield’s operations back to China. Probably true.
  • There are widespread concerns about China’s food safety problems being introduced directly into American markets (Bloomberg article). Unlikely.
  • And there are concerns about Shuanghui’s environmental record (who knows?).

Overall, the discussion of the deal is confused. Continue reading

The Relapsing-Remitting Sclerosis of China’s Healthcare System

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Healthcare is one of those subjects I obsess about. The dollars are huge (e.g., $3 trillion in the USA). It is uber- complicated. And as the government is perpetually involved, things are always economically contorted. You can find ridiculous profits and ROIC’s in healthcare, such as you would never find in free markets. It is politically distorted capitalism writ large – which I like.

Healthcare deals also tend to scare off lots of smart investors. Human disease is inherently complicated. Healthcare services largely defy attempts at standardization. And healthcare investing requires a mix of business, clinical and policy knowledge – a pretty rare combination. So lots of smart investors just stay away. If you have a room of 100 investors, virtually everyone will have an opinion about Wal Mart and Apple. But as soon as you mention a medical device company, 90% go silent. There is just a lot less competition for healthcare investments – which is a big thing in private deals.

And if you add China into this discussion (i.e., clinical + business + politics + China), you pretty much eliminate the other 10%. When it comes to China healthcare investments, I usually find myself the only person in the room with an opinion.

The article is continued here (page 11)

Six Winning Strategies for Middle East and China Deals (or Why the New Silk Road Failed)

By Jeffrey Towson, Kevin Tetarenko, Ehab Tantawy

What Happened to the New Silk Road?

In 2007, the “new Silk Road” was born. It was headline-making vision for how the Middle East and Asia would reconnect after 700 years of political and economic separation. It was a grand vision – a historic re-opening of ties that would be a game-changing new geopolitical axis.

And the economics of this vision were both simple and powerful. Oil-rich GCC countries would integrate with rapidly rising and energy hungry Asia. The new Silk Road was to be the beginning of massive movements of oil, capital, infrastructure projects and people. Continue reading

光华MBA—麦肯锡合作课程热烈开讲

Jeffrey Towson at Guanghua

Jeffrey Towson at Guanghua

Guanghua Press release – Chinese version. The link is here

由光华管理学院和麦肯锡公司(McKinsey & Company)合作的校企课程——当前中国投资与战略专题(Current Topics on Chinese Strategy and Investment)于本月18日晚热烈开讲。今年是该校企合作课程开设的第三年,与前两年一样,该课程一开讲便立即受到MBA同学的追逐和热捧。
课程第一讲由Jeffrey Towson先生主讲,Jeffrey Towson先生在从事投资行业的同时还在剑桥大学任EMBA课程教授,他是畅销书的作者。他的研究领域集中于新兴市场(中国,中东,拉丁美洲等),以及他们与西方日渐增长的互动关系。

        Jeff一开场便向大家提出了Carlos Slim及其名下公司、迪拜塔和中国移动的问题。在新兴市场中,这三者都在自己的行业领域中处于全球首位或者接近全球首位(Carlos Slim还是是世界首富)。随着Jeff的讲解,这些在新兴经济国家里读MBA的学生们,很快就领悟到了问题的要点——新兴经济体在过去十年中获得了巨大的经济增长。
  接下来课程进行了对上海迪士尼项目的案例分析。同学们分组讨论并扮演不同的角色——上海市政府、本地开发商和合作伙伴、迪斯尼和国际合作伙伴以及中间人:投资银行和顾问。问题集中于讨论项目对各方的利益、动机、挑战、以及合作利益。
几轮讨论之后,大家一致认为该项目有利于各方合作从而获利。接下来,Jeff抛出一个问题:如果上海迪士尼项目的规模增加一倍,两倍,或膨胀至迪拜乐园(上海迪士尼项目的12倍)的规模后是否还能一样获利呢?规模如此巨大但已经被证明并不经济的项目是否会使中国经济受重创呢?中国经济未来注定会面临迪拜似的崩溃吗?由于中国的内部需求潜力和对其面临的挑战的意识,Jeff并不认为中国经济注定要崩溃,这让在座的同学们松了一口气。
Jeff对新兴市场的洞察与他丰富的投资经验让这门课充满了与时俱进的味道并且具有权威性。他独特的讲述风格牢牢的吸引着、激励着大家去思考。同学们没有被牵着鼻子走,而是通过讨论和思考,共同领悟了课程的中心思想。

Press Release from PKU Guanghua. Kind of cool of them.

(Reposted from the Peking University Guanghua Webpage. Here the link)

Jeffrey Towson at Guanghua

On Oct 18th, at Guanghua School of Management , students gathered for the “Current Topics in Chinese Strategy and Investment” class by Jeffrey Towson. Jeff is an investor, best selling author (USA Today and Inc. Magazine) and Clinical Professor for Investment & Strategy at Guanghua, focused on emerging markets (China, Middle East, Latin America) and their increasing collision with the West.

The class opened with questions on  three entities: Carlos Slim, Burj Dubai, China Mobile- three emerging market entities that are (or have been, but still close to) #1’s in the world. Being in an emerging economy themselves, students quickly catch on to the point – the tremendous growth of these entities and their economies.

Continue reading

The Only Investment Question I Care About

I found my life got dramatically more effective – and a lot less anxious – at two key moments.

The first was when I realized I didn’t really understand business. I could quote past studies. I could fill charts with data. I could recite various pieces of wisdom from various people. But my understanding was like a patchwork quilt of other people’s thinking. It wasn’t a real understanding of the underlying mechanics. Not really. Just descriptions of various outcomes.

So one day, I just went back to mathematics, the only thing I was ever a natural at in life. I dropped all my business training and started to look at investing as one giant math problem. I discarded all the language and began creating my own. I stopped thinking about security analysis and started reframing everything as uncertainty analysis.

And suddenly everything clicked (key moment #1). (continued)

The full article is available for download here.

Chinese Manufacturing + Chinese Real Estate = World’s Tallest Tower in 90 Days

A very cool event in Changsha. The Broad Group is putting up the world’s tallest tower in 90 days. This follows on their recent building of a 30 story tower in 15 days (video here).

A good story about the power of pre-fabrication. Two big China capabilities- manufacturing and real estate – are being combined in a fairly impressive way.

Good article here.

Kevin Carter of Baochuan Capital on China Mobile, Li Ning and Other “Safe” China Stocks

It is the China paradox. At the same time Chinese companies are growing stronger and stronger, Western investors are growing more and more
pessimistic about them.

Jim Chanos says China is “Dubai x1,000”. Muddy Waters and other short-sellers are uncovering one Chinese stock fraud after the next. Western investors looking at China are seeing disturbing trends at the macro level and disturbing behavior at the micro level.

So how does one invest confidently and safely in the world’s #2 economy? This is becoming perhaps the most important question in value investing today.

We spoke with Kevin Carter of Baochuan Capital about this. Based in California and China, Kevin is a longtime expert on Chinese stocks. We spoke with him about where he sees opportunities in China today and how Western-based investors can capture them…

The full article is available for download here. Sign up on the right for future issues.