China

CITIC Guoan Wine Plans to Acquire Guoan lithium for RMB 2.7 Bln

Summary:

  • CITIC Guoan Wine Co (600084.SS) plans to acquire Guoan lithium Co. for RMB 2.7 billion, according to Sohu.
  • Shares of CITIC Guoan Wine will continue to be halted from trading.

Why It Matters:

  • The acquisition is a cross-industry deal. The major business of CITIC Guoan Wine is wine making which has been suffering from fierce competition from foreign low-cost wine imports. The firm needs to diversify its business in order to boost its profits.
  • The target company is a supplier of lithium, a key element in the production of electric car batteries. As the Chinese government is promoting the use of electronic cars, CITIC Guoan Wine expects the new business to generate RMB 1.6 billion in new revenue, much higher than CITIC Guoan Wine’s RMB 264 million revenue in 2016.
  • The Chinese regulator has been very cautious with cross-sector acquisitions. However, both companies are controlled by the Guoan Group which makes it easier to gain approval from the regulator.