Daimler, Beiqi Foton Scrap Stake Sale Plan, Seek JV

BEIJING -(Dow Jones)- Daimler AG (DAI) and Chinese truck maker Beiqi Foton Motor Co. (600166.SH) said Monday they have started exploring a possible truck joint venture as a faster way to partner in China, after a deal for an equity alliance appeared to fall through regulatory cracks.

The Beijing-based truck maker also said Monday it plans to raise up to around CNY1.1 billion in a private placement of up to 111.2 million shares

Daimler signed a deal with Beiqi Foton in January to take a 24% stake in the truck maker, but authorities have yet to approve the agreement and Beiqi Foton's share price has tripled since then.

"Great changes have taken place in China's economy, especially the stock market prices, since the two companies signed the agreement on the private agreement on Jan. 13, 2007," Beiqi Foton said in a statement.

"Despite the efforts from both companies and the Beijing municipal government, we still haven't received the regulatory approval," it said.

Both companies said they are now looking into the possibility of setting up a medium- and heavy-truck joint venture or some other form of cooperation.

"We like the joint venture better. In our discussions moving forward, we thought this was the best way to go," Trevor Hale, spokesman for Daimler, told Dow Jones Newswires Monday.

There is no timeline for the deal, Hale said.

The unraveling of the earlier agreement illustrates the mismatch between China's surging domestic stock prices and the nation's slow approval process for deals.

It also comes as concerns grow that the foreign investment climate in China may be getting tighter as Beijing this month put into effect revised, and in some areas tougher, regulations on its foreign investment policy.

Beiqi Foton said in November last year it planned to issue 297 million shares at CNY2.75 each to Daimler via a private placement. The deal would have given Daimler a 24% stake.

Beiqi Foton closed at CNY11.42 Monday, nearly three times its level of CNY4.41 when the agreement was signed. China's benchmark Shanghai Composite Index has more than doubled its value this year.

Beiqi Foton's rising share price wasn't the main reason for the deal being scrapped, but rather uncertainty by different government departments about how to assess and approve the share participation, said a person familiar with the deal, who declined to be named.

Both Daimler and Beiqi Foton have attempted a partnership before. They signed a 2003 agreement to set up a 50-50 joint venture, but talks were suspended in 2006 because of regulatory hurdles.

China only allows foreign auto makers to set up a maximum of two passenger-car and two commercial-vehicle joint ventures.

Daimler already has one JV in each. It has a commercial-vehicle venture, Fujian Daimler Automotive, with Fujian Motor Industry Group and Taiwan-based China Motor Corp. The venture, based in Fujian province, produces Mercedes-Benz Sprinter and Viano multipurpose vehicles. It was renamed from DaimlerChrysler Vans (China) Ltd. in October.

The company also has a passenger-car joint venture with Beijing Automotive Industry Holding Co., producing Mercedes-Benz E-Class and Chrysler 300C cars. Mercedes-Benz C-Class and Chrysler Sebrings will also be made, Hale said.

In May, Daimler sold its 50% stake in bus-maker Yaxing Benz Ltd. for an undisclosed amount, paving the way for a joint venture with Foton.

Meanwhile, Beiqi Foton also said Monday it plans to sell 100 million-111.2 million shares to up to 10 designated investors in a private placement at CNY9.88 a share.

Its parent, BAIHC, plans to buy 40 million shares in the placement, while the remainder will be sold to local fund management companies, trust companies, insurers and qualified foreign institutional investors, it said.

Corrected December 3, 200705:30 ET (10:30 GMT)

Daimler also has a passenger-car joint venture with Beijing Automotive Industry Holding Co., producing the Mercedes-Benz E-Class and Chrysler 300C cars. The venture will also be producing Mercedes-Benz C-Class and Chrysler Sebring models.