The chief executive of CLSA Asia-Pacific Markets once called the brokerage firm 'an insane asylum' populated by a group of iconoclastic analysts. Soon that crew will work for the Chinese government.
Government-backed Citic Securities Co. said Friday it will acquire Hong Kong-based CLSA in two stages from France's Credit Agricole SA for $1.25 billion. The sale is the latest step in a global retrenchment at Credit Agricole, driven by the euro crisis and the cloudy outlook for giant Western banks.
The takeover is a bold move by Citic, China's biggest brokerage by market value, to use global economic unrest to its advantage as it challenges Western rivals. It will help Citic connect capital-hungry Chinese companies with the big Western investors that CLSA counts as clients.
But making the tie-up work won't be easy. Chinese investments in Western financial firms haven't done well, and Citic is paying a premium for a company that has struggled with soft commissions and weak trading volume. Citic's record in cross-border deals includes a 2007 share swap with Bear Stearns Cos. that collapsed when the U.S. broker was sold in distress to J.P. Morgan Chase & Co.
Also, financial takeovers tend to be tricky because of the risk of culture clashes that can lead to the departure of top talent.
'Human resources are the most important asset for a global broker,' said Judy Zhang, an analyst at Deutsche Bank, in a report. 'It may be hard to retain talent if Citic Securities wants to fully integrate CLSA's Hong Kong operations.'
Citic has said it values CLSA's business and expects to keep a hands-off approach.
How the deal fares could depend largely on Chief Executive Jonathan Slone, a blunt New Yorker who helped make CLSA a force in Asian equities, and Yin Ke, a finance executive who helped negotiate Citic's deal with Bear Stearns. While the full management structure hasn't been set, Mr. Yin will join CLSA's board and Mr. Slone will keep running CLSA and continue to report to the board.
Founded 26 years ago by two journalists, CLSA rode the growth of finance in Asia but retained its quirky nature.
The company is perhaps best known for market forecaster Christopher Wood and his weekly newsletter Greed & Fear, as well as for other contrarian analysts such as Mike Mayo and Japan strategist Nicholas Smith.
This independent streak has made the company popular among professional investors. In polls by Greenwich Associates, CLSA ranks with top banks such as Deutsche Bank and Morgan Stanley in research and advice.
'The DNA of CLSA is to always be the insane asylum for people that can't work in the mainstream industry,' Mr. Slone said in a May 2010 interview.
The company also has hosted investor forums featuring keynote speakers including George Clooney, Desmond Tutu and Sarah Palin. The forums often have been followed by extravagant parties. In Tokyo in 2009, investors watched a pole-dancing act and a performance by singer Macy Gray. 'We like to party and our clients like to join us,' said Mr. Slone.
In the past, CLSA has retained key employees by making them shareholders. CLSA was 65%-owned by Credit Agricole with up to 35% held by staff. It is unclear how this will work under the Citic deal.
Deals matching Western and Chinese investment banks haven't always worked. Morgan Stanley was a co-founder of China's biggest investment bank, China International Capital Corp., in 1995, but disagreements led to a rift that sidelined Morgan Stanley from decision making. It sold out in 2010.
Mr. Slone, 51, founded electronic broker G-Trade Services in 1999, which was sold to Bank of New York Mellon Corp. in 2002. Mr. Yin worked his way through China's domestic brokerage industry, starting as the assistant to the CEO of the government-owned Shenzhen Stock Exchange. He moved to Hong Kong 10 years ago to lead the investment banking and private equity investment businesses at Citic Capital Holdings Ltd., and was named Citic Securities' executive director in 2009.
'We love CLSA as a family, we don't want to lose any member of the family,' said Mr. Yin.
Alison Tudor / Prudence Ho
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