China's FAW considers acquiring BMW partner Brilliance in $7.2 billion

FAW Group is looking at acquiring Brilliance China Automotive Holdings Ltd, BMW's main Chinese partner, in deals that may cost it some $7.2 billion and then take it private, two people with direct knowledge of the matter told Reuters.

Brilliance shares soared as much as 25.6% to HK$7.99 following the news.

The potential acquisition by state-owned FAW, China's No. 2 automaker, comes at a time when Brilliance's top shareholder Huachen Automotive Group is on the brink of bankruptcy, having defaulted on 6.5 billion yuan ($1 billion) in debt obligations late last year.

Under plans currently being discussed, FAW would first purchase 30.43% of Brilliance owned by Huachen and 11.89% owned by the state-controlled Liaoning Provincial Transportation Investment Group, said the sources.

It would then make a mandatory bid for the rest of Brilliance's shares. It is considering offering about HK$11 per share for the two-stage deal, representing a 70% premium to its average share price over the past month of HK$6.48.

To conduct a deal, FAW is looking at setting up an offshore investment vehicle and is seeking other investors, said the sources, who declined to be identified as the discussions were confidential.

FAW and BMW declined to comment. Brilliance, Liaoning Provincial Transportation Investment Group did not immediately respond to requests for comment.

Huachen said the information was false but did not elaborate. Liaoning province's state asset regulator, which owns a majority stake in Huachen, also did not immediately respond to a request for comment.

Reuters reported in September that Liaoning Provincial Transportation Investment Group was planning to lead a consortium of Chinese state-backed investors to take Brilliance private. However, the plan has been put on hold due to differences in valuations and financing difficulties, said one of the people.