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Deal Wizard Meets His Match in China

By early May 2008, Heckmann and his staff were in Hong Kong, negotiating a deal with Xu.

Heckmann himself took pains to ensure the operations were legitimate. He says he deployed a team of Credit Suisse (CS) bankers in Hong Kong, where they spent five months -- up until the deal's closing in November 2008 -- investigating every aspect of China Water. The lead banker was a native Chinese, educated at the University of Chicago, Heckmann says. He says the team checked and double-checked receivables, hundreds of them, in person and by phone, exercising a degree of care beyond anything Heckmann had previously done.

Heckmann recalls how, together with investigators, he toured and retoured the company's eight bottling plants -- clean, state-of-the art facilities with conveyer belts churning, and so many trucks in transit to and from the loading bays there was an air of a chaos, everything in motion 24-7. China Water's single biggest customer, Coca-Cola (KO - Get Report), confirmed its receivables to Heckmann himself. So did the second-biggest customer, the Taiwanese food conglomerate Uni-President.

"Even in hindsight," Heckmann says, "I don't know what else we could have done."

When an agreement was struck in May 2008, the investors who had joined Pinnacle in the China Water PIPE deals -- acquiring shares for $1.34 -- had the opportunity to sell their shares for $5 each, with the promise of another $3.80 or so per share in cash and/or stock if the company hit certain performance targets, Heckmann's filings with the SEC show. Their return would have been 273% in a little more than a year. But all of those investors chose to take stock from Heckmann instead, multiple sources have said.

By the time Heckmann completed his assessment of China Water's operations in the fall of 2008, the global financial crisis was at a fever pitch and prices for commercial assets were plunging. Consequently, Heckmann was able to convince Xu to renegotiate. Heckmann says that, in the end, Xu cut the purchase price of China Water by $120 million and agreed to take most of that in the form of stock, changes that proved critical to Heckmann later.
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