Editor’s note: Contributing columnist, Steve Nicklas, expresses his views and insight on various topics in Marketplace column.
You wake up one morning to see this startling financial headline: The company providing your long-term care insurance has been acquired.
By a foreign company. A Chinese company, that is, according to media reports.
This actually just happened. A major provider of long-term care insurance for individuals is being bought out for $2.7 billion (a cash deal). On one hand, this U.S. insurance company has been hemorrhaging from losses over unanticipated long-term care claims. So a cash infusion can be favorable for a cash-strapped company such as this.
On the other hand, a Chinese firm will now call the shots, and in this case, deliver the care. It is reported that the U.S. company will remain intact for now, held as a subsidiary of the soon-to-be Chinese parent. This would happen as long as the transaction goes through, and meets regulatory approval.
But there is more to this story. It is another American company being acquired by a foreign parent. And similar in a lot of ways to Japan’s buying spree in the 1980s here, Chinese companies are making many of these acquisitions.
Direct investments from China into the U.S. eclipsed $15 billion in value last year — a 30 percent increase from 2014. And this year looks to be another record year for Chinese investments, according to a report by the National Committee on U.S.-China Relations.
Of the 27 deals by Chinese companies announced this year, five are valued at more than a billion dollars. This includes acquisitions of a luxury hotel company, a technology firm, and the longtime insurance company.
As an example, a Chinese insurance company, Anbang, is rapidly acquiring U.S. hotel companies. This includes a planned $13 billion purchase of Starwood Hotels, the largest acquisition ever of a U.S. company by a Chinese firm.
Chinese firms are investing outside of their country’s borders in an attempt to boost growth. The acquisition of a U.S.-based insurance company, for instance, presents “significant long-term growth opportunities,” according to one Chinese official. Investors also view insurance companies as a platform to expand into other businesses, an approach borrowed from Berkshire Hathaway Inc.’s Warren Buffett.
Chinese firms have also been on a buying spree around the world — not only in the U.S. In total, Chinese companies have announced more than $200 billion in overseas transactions this year. A depreciating currency, the yuan, makes holding money within China a losing proposition for corporations there.
“For the Chinese company, buying U.S. assets is certainly a better way than holding yuan assets at the moment because of the expectation of dollar appreciation,” said Jerry Li, a Hong Kong-based analyst at China Merchants Securities Co.
The sale of American properties is not limited to companies. Foreign buyers, including the Chinese, purchased more than $100 billion in residential real estate over the past 12 months. Florida was the major destination for foreign buyers, accounting for one-fifth of the purchases of residential properties. The foreign buyers of residential real estate included Latin Americans, Europeans and Canadians.
But are wholesale acquisitions of U.S. companies or residential properties a positive development for our country, and our economy? Especially when foreign governments are not so amenable to U.S. companies buying their country’s companies. Frequently, these deals are blocked in other countries.
Granted, outside money is infused into the U.S. through real estate transactions and acquisitions. However, these firms are no longer truly U.S. companies.
Are our assets — real estate, corporations, buildings, etc. — all for sale to foreign buyers? And do we really want foreign entities running our major industries, and controlling our land? Wouldn’t this be startling enough?
Steve Nicklas is a financial advisor with a major U.S. firm who lives on Amelia Island. His financial columns appear in several newspapers in North Florida. He recently published a book of columns he has written over the past 20 years, entitled “All About Money.” He can be reached at 904-753-0236 or by email at [email protected]