Chinese Investment Fosun's Global Shopping Spree

The Chinese giant is buying into companies worldwide, including Germany's Tom Tailor, BHF Bank and KTG Agrar. Guo Guanchang, its chief executive, has big ambitions for Europe.
Guo Guanchgang's biography is typical of many businessmen in China.

Guo Guangchang’s life is typical of many climbing the ranks in modern Chinese society. The 48-year-old was born and raised in the rural province of Zhejiang and grew up in poverty. He still speaks fondly of his favorite dish, a humble meal his mother used to make for the family: rice with dried vegetables, occasionally supplemented with lard.

Today, Mr. Guo is one of the richest people in China, with private assets estimated at a good $4 billion.

He founded Fosun in 1992 with three fellow students at Fudan University, where Mr. Guo studied philosophy and earned an MBA. The four students mustered the equivalent of $4,000 to set up the company. Now it is the largest Chinese privately-owned conglomerate, a fast-growing network of shareholdings in real estate and companies in very diverse sectors.

Fosun is increasingly finding new targets outside China though at first glance, it seems hard to understand how the company works. However, behind its seemingly random buy-up of companies is a clear, if risky strategy. Fosun describes it as “combining China’s growth with global resources.”

Put simply, the company is acquiring an interest in companies whose products are in demand in the gigantic Chinese market and can help that market develop further.

It is confidently pursuing its goals and that can lead to conflict. For example, the surprising dismissal of CEO Björn Robens at BHF Bank in Frankfurt created trouble between the shareholders from China and the other stockholders.

Its hunger is far from sated. It is also interested in German fashion chain Bogner and the private bank Hauck & Aufhäuser in Frankfurt.

In person, Mr. Guo, who is closely connected to politics, seems modest, almost bland. That differentiates him from other Chinese high achievers such as Jack Ma, founder of the Internet platform Alibaba. But his aspirations are big – he likes to compare Fosun with Berkshire Hathaway, the holding company of the legendary U.S. investor Warren Buffett.

Fosun is riding a wave of capital and keen to invest it abroad. According to a study by the law firm Baker & McKenzie and the U.S.-based consultancy Rhodium Group, Chinese investors spent $18 billion acquiring interests in companies in Europe in 2014.

Chinese investment abroad has risen continually for a decade. At the beginning, the target was primarily gaining access to technologies. “Today they are much more diversified and engaged in all industries that can profit from production in China,” said Thomas Gilles, an attorney at Baker & McKenzie in Frankfurt.

Above all, Mr. Guo has an eye on the needs of the growing Chinese middle class. The country’s growth for years has primarily come from exports. Now, domestic consumption is expected to boost the upturn. The Chinese are traveling more, buying more consumer goods, and placing more value on brands and healthy foods. To profit from that, Fosun has spent billions for companies in the areas of tourism, insurance, retirement pensions, cosmetics and fashion.

In Germany, Fosun owns part of fashion chain Tom Tailor, BHF Bank and the agricultural company KTG Agrar. But its hunger is far from sated. It is also interested in fashion chain Bogner and reportedly looking into participation in the private bank Hauck & Aufhäuser in Frankfurt.

Fosun’s best-known involvement in Europe is in the French tourism company Club Med. It is also involved in the British travel company Thomas Cook, and the fashion companies Caruso from Italy and Folli Follie from Greece. The firm is primarily promoting the expansion of these brands to China.

Finding companies in Europe.

 

At the beginning of 2014, Fosun took over the Portuguese insurer Caixa Seguros for about €1 billion, or $1.1 billion. Insurers are expected to build the core business in the future, and Fosun is also involved in the Israeli company Phoenix and the American insurer Meadowbrook. As such, Mr. Guo is emulating role model Warren Buffett. The abundant investment capital at the insurers is expected to help finance the company’s global expansion.

Over the years Fosun has always succeeded in the timely backing of megatrends that shape the Chinese economy. “The advantage comes from noticing the change quicker,” said Mr. Guo.

From 1994 on, Fosun invested in new pharmaceutical companies, when that market was beginning to slowly liberalize in China. In the early 2000s, it focused primarily on real estate and founded Forte, which is today one of the largest real estate developers in the country. And when China’s boom in raw materials began, steel companies and gold and iron ore mines were on the top of the to-buy list.

Today the company has 37,000 employees and more than $10 billion in turnover. Fosun has been listed at the Hong Kong stock exchange since 2007, and its current market value is $19.2 billion.

The company’s expansion in the West began in 2010. Since then, Fosun has invested more than $25 billion abroad. The acquisitions include buildings with a public image such as One Chase Manhattan Plaza in New York, which Mr. Guo bought from JP Morgan for $725 million and then renamed 28 Liberty, or the City Group Center in Tokyo. The expansion is largely financed on credit. At the end of 2014, Fosun had debts of about $17 billion.

Video: Fosun Group Chairman Guo Guangchang explains how his company became a competitive global player.

 

Fosun acts professionally in its purchase negotiations, and the company has poached investment bankers from major institutions and is collaborating with the U.S. financial investors Fortress and Carlyle, among others. Negotiating partners noticed that Fosun continues to be strongly aligned with its founders, who make all of the final decisions. As such, the company is not a passive investor, but actively involved.

At times, the firm seems to overshoot the target though, as was recently evident with the BHF Bank in Frankfurt. Fosun is involved with almost 20 percent at its parent company BHF Kleinwort Benson, and subsidiaries hold another 10 percent. Problems with the bank’s operations and an equally close and opaque relationship with Fosun, the major shareholder, reportedly contributed to the departure of the bank’s CEO Björn Robens. Sources in Frankfurt say that despite this connection, hopes for a growing business for the bank in China have hardly been fulfilled.

Fosun’s disapproval over Mr. Robens’ departure manifested itself in an unusually strong way. That caused problems in the bank. Insiders blamed a lack of understanding for the rules of western management. How things will proceed at BHF Bank remains unclear, with the guesses ranging from a complete takeover by Fosun to its withdrawal from the bank. In either case, the battle highlights growing confidence of Chinese companies doing business abroad.

 

This article originally appeared in German business weekly WirtschaftsWoche. To contact the author: [email protected]