Deal Wizard Meets His Match in China

According to Heckmann, the first sign of trouble came a month after the closing. That's when Heckmann noticed a revenue slide. It seemed that China Water's customers were reluctant to pay their bills. But this could easily be explained. The world's economies had gone into recession. Even the People's Republic had found it necessary to launch an enormous stimulus plan. Plus, end-of-year delays in payments are common, throughout the business world. Come December, companies want to show cash on their balance sheets, so they hold back.

"It was troubling," Heckmann says of the slide, "but it didn't tell me anything."

The most disturbing signal came in early 2009. Heckmann had installed at China Water a new COO and new CFO. The new COO was bilingual, native Chinese, with experience as a Coca-Cola bottling executive in China. Heckmann had wanted him to act as Xu's lieutenant, providing critical support for Xu, as Xu didn't speak English, and had needed a translator to interact with his American backers. Heckmann says he was shocked when Xu shut the COO out of all operations meetings.

TheStreet contacted Xu's lawyer, Israel Dahan, who is with Cadwalader Wickersham & Taft, one of the oldest law firms on Wall Street -- and Dahan declined to make Xu available for comment.

When confronted, Xu was polite but inflexible, Heckmann says. Xu resigned on March 13, 2009, a Friday. Thirteen days later, Heckmann's nightmare began in earnest.

China Water & Drinks was itself a roll-up, still active in acquiring smaller companies, a strategy Heckmann had planned to continue. One deal was in process when Heckmann acquired the company. Heckmann believed that China Water had agreed to pay $13.9 million for a bottled-water plant in Harbin, a city in northeast China. He recalls that, to his great surprise, he got a call in the middle of the night at his home in Palm Desert. He says the new CFO told him over the phone that the owner of the Harbin plant had agreed to sell for -- not $13.9 million -- but $2 million.

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