US company sues China’s HNA over failed deal
Complaint alleges group intentionally misled American authorities and disguised ownership
HNA Group is facing a lawsuit in the US over a failed acquisition, with its takeover target alleging the Chinese conglomerate intentionally gave false information to US authorities and disguised its true ownership structure.
US-based software group Ness Technologies filed a complaint with the Supreme Court of the State of New York against HNA and its Beijing-based IT outsourcing unit Pactera, claiming the Chinese companies caused it material damage by not living up to their agreement.
Pactera agreed in March to buy Ness’s digital engineering entity, Jersey Holding, for $325m. The Chinese-owned group said regulatory approval from the Committee on Foreign Investment in the US, the watchdog that reviews inbound investment for national security risks, was a condition for closing the deal, according to the lawsuit.
Ness alleges in the complaint that Pactera and HNA assured it the deal would easily gain approval and agreed to use their “reasonable best efforts” to do so. But following the initial transaction agreement, HNA allegedly “poisoned and prejudiced the Cfius review process”, the complaint says, leading to the deal’s eventual collapse.
Ness did not have a break-fee agreement with HNA and is seeking $65m in damages.
The lawsuit is the latest blow for HNA in the wake of a more than $40bn global buying streak in which the Hainan-based company snapped up stakes in Deutsche Bank and Hilton Worldwide.
In recent weeks HNA has faced difficulties related to its opaque shareholdings, as well as concerns over its access to liquidity and ability to finance acquisitions.
Last month the Swiss takeover panel said HNA had provided false information when it purchased air-services company Gategroup last year for SFr1.4bn ($1.4bn). Citing a Financial Times article, the panel homed in on declared holdings of two shareholders and called information the company provided “untrue or incomplete”.
The Ness complaint alleges considerable wrongdoing on the part of HNA. It says HNA and Pactera “provided demonstrably and knowingly false, inconsistent, and misleading information to Cfius” and then delayed correcting those statements.
HNA and Pactera also allegedly “covertly worked to evade and frustrate Cfius’s ability to investigate and review the transaction, including by discussing, planning, orchestrating, and implementing various schemes to disguise the true nature of their organisations, corporate structures, and ownership”, according to the lawsuit.
Ness said in the complaint that it had found information provided by Pactera to be inconsistent with details in China’s National Credit Information Publicity System database, which showed that HNA founder Chen Feng and other executives held shares in several of its parent companies that they did not disclose.
HNA did not immediately respond to requests for comment on the matter.
The company was founded as a provincial airline in the early 1990s but has grown into a $145bn conglomerate that now controls New Zealand’s largest financial services firm, and holds stakes in aviation services companies and hotels in at least 14 countries.
In July, the Single Supervisory Mechanism, the banking watchdog that operates under the European Central Bank, began considering whether to launch an investigation into whether HNA could wield significant influence over Deutsche Bank as its largest shareholder, according to people briefed on the situation, and whether it was fit to do so.
HNA’s financial health has come under scrutiny this year after Chinese regulators took steps to stop private companies moving money out of China.
However, in an interview with the Financial Times last week the company dismissed concerns about its liquidity, although it acknowledged a year-end credit squeeze as Chinese banks come to the end of their lending quotas.