The Big Three's "Heroment Resentment" Has Intensified

A change in ownership of a listed company has finally brought long-standing tensions between China's leading heavy-duty truck manufacturers to light. The recent developments have revealed deep-seated rivalries that have simmered for years. Last Friday, during a performance meeting in Hong Kong, Wei Xuan, chairman of Weichai Power (2338.HK), which is currently facing internal and external challenges, publicly stated that the company had no intention of raising funds on the A-share market or planning to spin off the Hunan Torch business. This announcement was aimed at reassuring investors who were concerned about the company’s future direction. The "marriage" of M&A When Tan Xuguang made his comments, it had been exactly one year and one month since Weichai Power acquired Hunan Torch. At that time, Weichai Power’s stock price in Hong Kong was around 30 HKD, but by last Friday, it had dropped to 19 HKD. Analysts suggest that the drop in stock price was largely due to investor skepticism over the merger. Domestic and foreign investment banks, including China Gold, released critical reports that triggered a wave of selling. In mid-January 2006, a research report by Tian Jindong, an analyst from China Gold, circulated widely. Titled “Weichai is Probably Going to Lose Its Largest Customer,” the report warned that Weichai might lose its biggest client, Sinotruk (000951.SZ). As a result, the analyst reduced Weichai’s engine sales forecasts for 2005 and 2006 by 2% and 18%, respectively. Following the report, Weichai Power lost HK$528 million in market value after its stock price crashed on January 13. Mergers and Acquisitions Triggered by Family Rivalries Soon after, Morgan Stanley and Goldman Sachs also issued negative reports, further pressuring the stock. One analyst noted that this sequence of events was not coincidental. He pointed out that China Gold is a key partner of Sinotruk, serving as both its share reform sponsor and underwriter for its overseas listings. At the time of the share reform news conference, Sinotruk’s sponsors released unfavorable reports, signaling a clear move against Weichai Power. According to insiders, the rivalry between Weichai Power and Sinotruk Group has deep roots. Before their relationship officially broke down in March 2006, Weichai Power was part of the Sinotruk Group, making it a subsidiary under CNHTC. “There has long been tension between Tan Xuguang of Weichai Power and Ma Chunji of Sinotruk,” said a source familiar with the matter. Long-Buried Resistance According to insiders, the conflict between Tan Xuguang and Ma Chunji began as early as two years prior. In March 2004, after Weichai Power successfully listed in Hong Kong, Tan’s desire for independence grew stronger. Meanwhile, Ma aimed to use both Sinotruk and Weichai Power to build a full industrial chain, while Tan resisted, wanting autonomy instead. Another key factor that led to their eventual falling out was Tan’s plan to implement an MBO (management buyout). When the Chinese group tried to use Weichai Power’s “shell” for an overall listing in Hong Kong in early 2005, Tan rejected the proposal, deepening the rift. In August 2005, when Tan acquired Hunan Torch through Weichai Investment and indirectly controlled Shaanxi Heavy Duty Truck, the conflict became public. This move threatened the interests of CNHTC, leading to resistance from within the group. “Weichai Power Suffered Financial Crisis” “Independence comes at a cost,” said Zhang Hongji, a veteran in the securities industry. After separating from CNHTC, Weichai Power now faces severe financial pressure. First, before separation, over 40% of Weichai Power’s contracts came from CNHTC. This loss significantly impacted its sales. Second, the acquisition of Hunan Torch required a large sum of money. For a 28.12% stake, Weichai paid 620 million yuan, and also purchased bonds worth over 400 million yuan, totaling nearly 1.023 billion yuan. This investment alone led to a HK$1.05 billion IPO in March 2004. Additionally, Tan Xuguang’s engine park project, which he had invested nearly 3 billion yuan in, did not perform as expected, leading to construction debt and legal issues. Zhang Hongji also noted that controlling Shaanxi Heavy Duty Truck may help Weichai regain some independence, but local authorities in Shaanxi are wary of foreign control, posing a major challenge for Tan.

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