Ning Gaoning: how Chinese SOEs buy out foreign firms

The former executive of several of China’s major state-owned enterprises, known for spearheading big international M&As, shares stories and strategic thinking behind SOEs' international expansion.

Ning Gaoning became President of China Resources Enterprise Limited in 1990 and Vice Chairman and President of China Resources (Holdings) Co., Ltd., the parent and a major state-owned company in China, in 1996. Then, after 11 years as CEO of the state-owned China Oil & Foodstuffs Corporation (COFCO), Ning served as CEO of Sinochem Group, another state-owned giant, starting in 2015 and of ChemChina beginning in 2018. When the two major state-owned chemical giants merged to form Sinochem in 2021, Ning became chairman of the company, serving until his retirement in 2022.

During his illustrious career leading several major Chinese state-owned enterprises (SOEs) across various industries, Ning Gaoning became best known for hundreds of mergers and acquisitions, earning him the nickname the "J.P. Morgan of China." In 2024, he published his book, 三生万物 Three Produced All Things, in which he details COFCO's acquisitions of overseas grain enterprises and Sinochem's acquisition of Syngenta.

The publisher of Ning's book has kindly permitted The East is Read to translate and publish a segment of his book, which is also available on the official WeChat blog of Zhenghe Island, a Chinese network platform for elites.

宁高宁：我亲历的几次并购

Ning Gaoning: Several Mergers and Acquisitions I Experienced Firsthand

In 2014, when I went to Rotterdam, Netherlands, customs stopped me upon entry. They interrogated me about the purpose of my visit, and I said, to invest. They asked, what kind of investment, and I replied, an acquisition. They then asked which company, and I answered that its name was Nidera.

They looked up the name on their computer and discovered that Nidera was one of the top-ranked companies in the Netherlands in terms of revenue and that I was set to become its chairman. They looked confused but let me through.

I had heard that illegal immigration was an issue at the time, so Chinese visitors were particularly scrutinized. Being treated like a suspect naturally annoyed me, but as I was there to acquire a Dutch company, I, with confidence, and grew impatient during the interrogation, finding the Dutch rather impolite.

When I arrived at Nidera, there was an all-staff meeting in the afternoon, which they called a "Town Hall" meeting. A few hundred people—some seated, some standing—filled the space, occupying every available floor, chair, and table surface. Everyone was eager and curious to attend. However, such meetings are rare for foreigners, so the venue felt rather chaotic.

After briefly explaining China Oil and Foodstuffs Corporation (COFCO)'s background, intentions, and expectations for the investment, the first question raised was, "Why do you want to buy our company?"

I replied, "That's a very good question because I was just questioned about it for quite a while at the customs. How can someone who was seen as suspicious just for trying to enter the country buy a major Dutch company? It's perfectly reasonable to have doubts about an acquisition! Acquiring Nidera is certainly part of COFCO's development plans, but it's also beneficial for Nidera and for everyone involved. Whether it's beneficial for you all is something we'll have to answer together."

This question also reminded me of when I was negotiating with Nidera's major shareholders about acquiring their equity six months ago. Their initial question was also, "Why do you want to acquire us, and why do you insist on being the majority shareholder?"

Capital is just a bridge and a tool

It seems that not only financial journalists but also those involved in acquisitions are curious about the reasons behind company buyouts. Traditionally, people assume that businesses engage in trading goods, and if they scale up, they might start buying and selling assets like buildings and machinery. But why buy and sell entire companies? This practice, along with raising funds through public listings, is what the Chinese refer to as "capital operations."

The term "capital operations" carries a negative connotation, suggesting something non-material or speculative. In the U.S., there's also criticism around buying, restructuring, and reselling companies, which often results in companies being split up and workers losing jobs. Yet mergers and acquisitions have continued to thrive over the years. Why? In short, acquirers believe the company will perform better in their hands than in the seller's! The current ownership is seen as limiting the company’s potential.

This limitation might stem from management ability, resource integration, or business model alignment. In any case, the buyer offers a premium to acquire the company and realize its value more fully through their efforts—whether by improving products, enhancing management, or integrating resources to make the company more competitive.

At this point, the company becomes a tradable commodity, and this process is known as mergers and acquisitions, or M&A, in English.

It’s essential to clarify that if post-merger value growth goals aren’t achieved—if the acquisition merely increases size without enhancing efficiency, or if it simply converts capital into low-return assets—then the merger is a failure, and the company will not thrive in the long term.

When I returned from China Resources Group in Hong Kong to the Chinese mainland, I completed a few M&A-style investments, not for the sake of acquisitions but to establish businesses for long-term development. Acquisitions were simply a means of quicker entry into the industry.

After China Resources acquired Beijing Huayuan Property and several beer breweries, China Entrepreneur magazine ran a cover story around 2001, calling me the "Chinese J.P. Morgan." I understand the magazine used this term to attract readers, but my activities—both in nature and scale—were far from comparable to Mr. Morgan's in the U.S.

Nevertheless, the label stuck, and it was hard to shake off. Around the same time, China Central Television's (CCTV) finance program named me "China's Economic Person of the Year," citing reasons like capital operations, major acquisitions, and sweeping through industries—the "Chinese J.P. Morgan."

As I said in my acceptance speech for the "China's Economic Person of the Year," I disagree with the term "capital operations," as it's misleading and needs correction. "Capital operations" is not a form of business management; capital is simply a bridge and a tool. The fundamentals of corporate management remain unchanged; otherwise, M&A would be unsustainable. Yet my remarks seemed to fall on deaf ears.

Later, some tallied the hundreds of M&As I had initiated at China Resources, COFCO, and Sinochem, dubbing me a "capital operations expert." For a while, even when meeting guests or friends, I would be introduced as "Ning Gaoning, expert in capital operations." It was both amusing and embarrassing.

Like a strong wind stirring up a dust storm, everyone became disoriented, and I could only go with the flow. Even so, there's a truth in this: at key strategic phases of each company I've been part of, M&As, equity transactions, and capital market financing played significant roles.

But this only scratches the surface. The real key lies in enhancing asset quality, increasing operational efficiency, and continuously driving innovative development.

The Story of COFCO's Overseas Agribusiness Acquisitions

China Resources, COFCO, and Sinochem have indeed many M&A stories. One of the earliest and most well-known might be the acquisition of Snow Beer in the mid-1990s and the subsequent consolidation of the beer industry.

But let me continue with my story about Rotterdam and talk about COFCO's overseas agribusiness acquisitions.

COFCO acquired two overseas companies simultaneously: Nidera, headquartered in the Netherlands, and Noble Agri, headquartered in Geneva, Switzerland. Together, these companies held assets exceeding $20 billion and annual revenues nearing $40 billion, with operations and assets spanning the globe—from Russia, Ukraine, and Kazakhstan to Brazil, Argentina, and the United States. They are comprehensive global players in agricultural trade and logistics.

These companies early recognized the imbalance between agricultural supply and population distribution across the Eastern and Western Hemispheres, giving them a strategic advantage. While visiting Nidera, I traveled to the Pampas plains in Argentina, where I saw endless expanses of lush, dark green soybean fields stretching to the horizon.

After the previous season's soybeans were harvested, they were packed in unique bags and left by the fields, awaiting sale like products on a production line—this place was essentially a non-stop soybean factory.

I asked if we could drive into the fields to take a closer look. The host replied that if we went out there, we’d need to let the dog lead us, or we might get lost—the fields were so vast and unmarked! Ha! Digging into the Pampas soil revealed rich, black earth teeming with earthworms. Here, they don't need to clear crop residues or till the soil; after each harvest, they simply plant seeds directly into the ground.

This place has the ideal climate, soil, and rainfall for agriculture. No wonder Argentina is one of the few countries that imposes export taxes on agriculture; the land is so fertile and the production costs so low that even after a nearly 30% tax, agricultural products from Argentina remain competitive in the global market. Linking this abundant supply with the demand from China and other parts of Asia makes perfect sense.

Many people asked why COFCO acquired two companies at once. I explained that both opportunities emerged simultaneously: Nidera's family owners were in conflict and wanted to liquidate their assets. Noble Group was looking to sell its agricultural division due to losses in other businesses.

Moreover, COFCO was highly ambitious at the time. Acquiring just one company would not be enough to achieve its global positioning and goal of becoming a leading global agribusiness enterprise.

After more than 30 years of rapid growth and a shift in dietary habits from starch-based to high-protein foods, China has become the world's largest consumer market for cereals, oils, foodstuffs, and the largest importer of soybeans.

Although COFCO has long been a player in agricultural trade, global supply-demand dynamics made it realize that it couldn't simply sit in its Chang'an Avenue office, buying foodstuffs over the phone through foreign agents. COFCO needed to go out, connect with diverse overseas suppliers, and source directly from farmers. This would help control costs and provide deeper, closer insights into market trends.

Furthermore, COFCO's strategic goal was not just to be a foodstuff importer but to become a major global foodstuff trader, working to balance the world's food supply and demand. Nearly 70% of the global population lives in the Eastern Hemisphere, which holds less than 30% of the world’s arable land, while the Western Hemisphere has ample farmland but a smaller population. It's similar to the Middle East, where a relatively small population holds about 60% of the world's oil reserves.

In this sense, nature does seem rather unfair. Working in grain and oil trade for COFCO and Sinochem, I often envied countries with such rich resources, and these imbalances can only be adjusted through international trade.

For over half a century, global agribusiness has been dominated by the so-called "Big Four" commodity traders—Archer Daniels Midland (ADM), Bunge, Cargill, and Louis Dreyfus. COFCO has collaborated a lot with them in the past, but its internationalization strategy is now aimed at challenging this status quo.

When news of COFCO's negotiations with Nidera and Noble (internally dubbed the "two N's" within COFCO, with some jokingly referring to it as "CNN" when combined with COFCO) began to spread, the chairman of Cargill rang me. He said, "You don't need to buy foreign companies. If you need soybeans, just give me a call."

He added, "Investing in these companies will surely cost you more than buying directly from me." I responded that we needed to establish our channels, at least partially. And with good management, hopefully, the costs wouldn't be too high.

Later, the chairman of Bunge also called and asked, "If you establish your channels, will we be partners or competitors in the future?" I said, "Probably both. I hope we can collaborate, but I'm sure there will be some competition, too!"

Previously, COFCO had bid on Tully Sugar in Queensland, Australia, where Bunge and a Japanese company were also in the running. Bunge held an advantageous position, so I called their chairman and explained that China's market demand and COFCO's strategic goals aligned strongly with acquiring this sugar mill, the largest single plant in Australia. I asked him to consider our long-standing grain trade relationship and not to compete too aggressively with COFCO. Bunge ultimately refrained from raising its bid, allowing COFCO to acquire Tully Sugar, which has since operated well successfully.

Now that COFCO was acquiring other international agribusiness companies, its trade with Bunge was bound to decrease. Bunge's mild displeasure was understandable, but this is the market, this is business—the commercial world!

Line of Credit: The Lifeline of a Trading Company

Typically, people start with something familiar: opening a factory, building a property, or starting a restaurant or store. It's rare for someone to envision a complex international trade framework from the outset.

I remember speaking with Noble's former shareholder after our acquisition. He asked, "What do you think is the most crucial element in building a global grain trading and logistics company?" I said, "I guess it might be trade channels and logistics facilities." But he smiled and said, "No, the most important thing for a trading company is its line of credit with the banks."

He explained that once a line of credit is secured and the bank's trust is established, it only takes a computer and a partner to start running a company.

I asked, "What if the bank doesn't give you a line of credit?" He said, "The trick with banks is to offer them a small incentive." "What kind of incentive?" I asked. "Just a little bump in the interest rate," he replied. "How much higher?" "Just 0.5% above the usual rate, and the bank is willing to lend to you. That's how banks operate."

He added that what bank managers want more than anything is to extend loans at higher interest rates, as this immediately benefits both the institution and themselves, while any potential risks may not materialize until years down the road.

Haha! He certainly had a profound understanding of bank behavior and knew that commodity trading is fundamentally a game of leveraging bank money to move goods. Yet, it's this very game that helps balance global supply and demand.

When COFCO acquired these two foreign companies, it was both strategic and cautious about risks. Although COFCO was already experienced in international trade and unafraid of overseas operations, it sought to manage risks related to management, global integration, and financing by bringing in international investors.

COFCO brought in funds from Temasek, Hopu Investment, the International Finance Corporation (IFC) of the World Bank Group, and Standard Chartered to invest 40% in the venture. The primary entity, COFCO International, was established from day one as an international company under COFCO's majority control, following a mixed-ownership structure.

This structure aligned well with China's push for mixed-ownership reforms in state-owned enterprises (SOEs) at the time, and it has proven effective. Not only does it help distribute financing and investment risks and has also played a key role in valuation negotiations, board composition, joint-venture management, and adapting to local investment environments.

What I found most gratifying was that COFCO was the strategic driver behind COFCO International. COFCO was an investor and beneficiary of financial returns, the chief architect of operational synergy, and the largest beneficiary of value creation.

Naturally, COFCO's development strategy encompasses China's food security objectives. It is rooted in COFCO International's successful business model but extends beyond short-term profits to achieve greater long-term value.

In the past, COFCO often ended up as a passive minority shareholder when collaborating with more advantaged investors, as if merely helping its partners achieve their strategic aims. This time, however, it was clear that all partners were aligned under COFCO's strategic leadership.

Similar experiences came with partnerships like that between China Resources Beer and SABMiller, as well as the joint development of Residence Oasis in Hong Kong by China Resources Enterprise with Cheung Kong Holdings and Sun Hung Kai Properties. In these partnerships, I consistently emphasized that COFCO International should uphold a few key "alignments": aligning national and corporate strategies, aligning the strategies of major and minor shareholders, and aligning strategic objectives with financial returns.

Valuation Negotiations: A Key Step in M&A

In the acquisitions of Nidera and Noble, as with any M&A transaction, negotiating valuation was crucial. Internationally, there is no "fair" valuation agency that everyone agrees upon; estimates are merely a reference point. Investment banks may use different valuation methods, yielding vastly different results.

Ultimately, each method represents a distinct perspective, and all valuations can be somewhat biased. Ultimately, it comes down to negotiations, with valuations serving as a basis.

Since Nidera and Noble were primarily trading companies, their valuations differ from those of industrial or other companies. Metrics like historical earnings or P/E ratios are less relevant due to the inherent profit volatility, and cash flow multiples aren't ideal due to inventory, receivables, and fund utilization fluctuations.

Both companies also owned extensive trading and logistics facilities—warehouses, ports, and rail facilities—which required separate valuation metrics.

Additionally, they had valuable production assets, like corn and soybean processing plants, Noble's sugar mills in Brazil, and Nidera's seed business in Brazil and Argentina, which held significant market share. These assets have indeed proved valuable.

Another more difficult factor to evaluate was the future synergy value generated post-acquisition and control transfer to COFCO. Although this value had yet to materialize and would be created by the acquirer post-restructuring, the seller still wanted a share of this hypothetical value, necessitating its inclusion in the valuation.

Overly optimistic synergy values often fail to materialize, hence disagreements over future projections, valuations, and earnout mechanisms.

A truly credible valuation approach would be referencing recent transactions of comparable companies or the stock prices of similar publicly traded firms, while considering the acquirer’s strategic objectives and market outlook.

Achieving a satisfactory valuation is crucial, but subsequent management integration is no less critical.

Initially, when Nidera and Noble sold a 60% majority stake to COFCO, their plan was to maintain operational control despite the sale. During negotiations, we also indicated a willingness to consider joint management to avoid creating a defensive atmosphere.

However, certain core principles must be upheld. COFCO needed to ultimately control the company's strategic direction, asset restructuring, executive appointments, and performance evaluations. Without this authority, COFCO’s strategic objectives could not be achieved.

These areas faced significant challenges during the first year, leading to board restructurings, changes in chairmanship, and multiple CEO replacements. Ultimately, COFCO appointed staff directly from headquarters to take complete management control. Only then did the proper integration of operations, teams, and culture begin.

Though most foreign employees remained, integrating Nidera and Noble into COFCO International—led by a COFCO-centered team—marked the beginning of COFCO’s internationalization journey.

Looking back, this experience illustrates several points:

1. Integration succeeded because the COFCO-led team established the strategic direction, growth objectives, and organizational culture, laying the foundation for current achievements. This experience has provided valuable lessons on balancing diverse interests between Chinese and foreign teams in post-acquisition evaluation and coordination, especially when managing conflicts of interest among multiple parties.

2. Nidera and Noble’s original shareholders, focused on short-term gains rather than long-term strategy, struggled to collaborate effectively and integrate, ultimately undermining their efforts. COFCO International has since exceeded their expectations.

3. Despite multiple rounds of audits from various investors, financial figures may still be unreliable, even in the West, particularly those from subsidiaries of Western firms operating in underdeveloped regions.

Nearly a decade has passed since COFCO's bold move to expand internationally and establish a global network. I hear COFCO International has performed well in recent years and am genuinely happy for them. COFCO's team has learned from early missteps and has corrected course.

Today, COFCO has effectively caught up with the so-called "ABCD" ("Big Four"). In 2022, I met a former COFCO leader who had been invited to visit COFCO International's headquarters in Geneva while on vacation. When he returned, he said, "Gaoning, I went to see it. COFCO looks like the kind of major international company we used to imagine!"

In M&A, People Are the Foundation, the Essential Element, and the Deciding Factor

In business, what looks simple from the outside can be surprisingly complex, while what appears complex may actually be straightforward.

In my experience, exhaustive validation and complex procedures often don’t lead to success. An excessive focus on process can distract from substance; complex decision-making procedures are often more about psychological comfort than about improving decision quality.

If all that were required for a successful investment were to follow procedures, things would indeed be simple. But in reality, investment success often depends on deep, focused thinking at critical moments before the investment—insights into the essence of the business and, of course, the courage to face potential risks and consequences.

COFCO's investment in Mengniu happened this way through a swift decision-making process. Why? Because COFCO had a strategic foundation and a long-term grasp of the industry. When COFCO decided it should extend from agricultural commodities into consumer food products, dairy was a natural choice, as it was one of the few fast-moving consumer goods sectors still experiencing rapid growth.

Mengniu's equity was a valuable asset that many sought to acquire, including China Resources. I told the intermediary at the start that if China Resources, my former company, was interested, COFCO would withdraw. But things moved quickly, and China Resources decided not to proceed.

Almost by chance, COFCO's Coca-Cola bottling plant in Horinger County, Hohhot, Inner Mongolia, near Mengniu's headquarters, was opening, and everyone gathered there for the occasion and had lunch at Mengniu. Then, we revisited the idea of acquiring Mengniu's shares and discussed valuation.

Since Mengniu was publicly traded, its stock price was easily accessible. Someone with a Blackberry quickly checked the current price and suggested a 5% discount. Both parties agreed on this price, but each still needed internal approvals. Though there were some back-and-forths later, the key principles were set.

At the time, the largest shareholder, with over 20% of the shares, valued the stake at more than HK$6 billion. COFCO, in partnership with Hopu Fund and others, executed the largest M&A transaction in China's food sector. Later, COFCO brought in Denmark's Arla Foods and France's Danone as shareholders, significantly internationalizing Mengniu's shareholder base.

This internationalization restored Mengniu's market leadership, strengthening its management, reputation, and confidence. When COFCO invested in Mengniu, the company was still recovering from a previous food safety incident. Mengniu later faced an aflatoxin scandal, which further affected the company. Nevertheless, Mengniu responded proactively and effectively, significantly enhancing its overall management.

Behind these market events, largely unnoticed, were the integration, clashes, and improvements within Mengniu's management team resulting from shareholder changes. Post-acquisition, corporate development often faces its most significant challenges in management integration.

Mengniu can be described as a legendary company that timed its entry perfectly with the development of China's dairy market and capital markets. In just ten years, it established itself as a highly successful, leading company and gained consumer recognition.

During Mengniu's development, its founder famously said, "Spread the money, people will rally around you; centralize the money, people will leave you," a phrase that profoundly shaped the company’s culture. Mengniu's extensive equity incentive plan created substantial wealth for early-stage participants.

As the company went public, this initial group gradually exited their management roles while a new team took over, which was challenging. Adding to this was the challenge of food safety incidents and a change in major shareholders. Mengniu was indeed in a period of significant transformation.

When COFCO became Mengniu's major shareholder, ensuring Mengniu's success was not merely an investment matter; it was a test of COFCO's credibility and competence. As a state-owned enterprise, COFCO undoubtedly had the resources and capability to take on the responsibility, but what about its management capability and competitiveness? COFCO, though also in the consumer goods industry and familiar with competitive markets, had a corporate culture that differed significantly from Mengniu's "wolf warrior" culture.

After COFCO assumed majority ownership and I took on the role of chairman, we faced the decision of how to balance the two management styles—whether to lean more toward COFCO's approach or Mengniu's. COFCO ultimately opted for a market-oriented and competitive strategy, giving Mengniu's team the space to excel in supporting its business growth.

Mengniu eventually replaced its CEO, and the management team and systems were adjusted. However, Mengniu's culture of relentless pursuit and "wolf warrior" drive to seize opportunities was preserved.

In a highly competitive environment and after major external changes, Mengniu has continued to advance in operational scale, market share, profitability, brand value, and supply chain integration—domestically and internationally—under COFCO’s majority ownership. The company’s profits and market capitalization have grown severalfold, making COFCO’s investment in Mengniu a challenging yet ultimately successful journey.

Mengniu's example illustrates many types of M&As, and their likelihood of success can almost be predicted from the start. M&As with a clear strategic intent, strong management and financial foundations, and potential for synergy are more likely to foster a unified culture, making success more achievable.

Effective integration and collaboration become much more challenging when only capital is available—without professional management capabilities or value created through synergy. Leveraged buyouts, which involve substantial debt, carry even greater risk. Acquiring a company with just capital incurs personal loss and damages societal value.

But these principles aren't set in stone. When opportunities arise, sometimes it's necessary to endure a bit of roughness, overlook minor theoretical issues, and deal with specific problems later.

What's critical is to seize the opportunity and enter the field. I've often said, "You're all correct, but if we miss this chance to get on board, our risk may indeed be lower, yet we'll forfeit our next journey, left without even a place to compete."

With opportunity comes increased risk. Choosing a challenging path ultimately depends on the team's ability to overcome difficulties and solve problems.

In the end, M&As can be pursued when both capital and talent are present. It may still be worthwhile to consider if there's talent but no capital, but if there's capital without talent, it's best not to proceed. And, of course, without both, it's out of the question. While M&A may appear to be about purchasing others with money, it's fundamentally about integrating others through one's own team. Like all aspects of business management, M&A ultimately comes down to people—the team is paramount.

People are the foundation, the prerequisite, the essential element, and the deciding factor. With the right team, anything can be achieved. Sometimes, we understand this clearly; sometimes, we forget. But it's precisely this that determines a company's success or failure.

In its early rapid growth, China Resources required that any M&A meet the criteria of ensuring no dilution of earnings per share or net assets per share. By today's standards, these expectations were high, but there were more opportunities and companies to choose from at the time. Now, it is much harder to find quality assets at low valuations.

Consequently, over the years, return on equity in M&A has declined, at times dropping below financing costs or even resulting in losses. Nonetheless, some acquisitions were pursued for long-term strategic goals, with the hope that efforts would enhance performance. Such acquisitions carry greater risk, making post-acquisition management, team collaboration, and the realization of anticipated value even more critical.