China’s Tengzhong is having a hard time selling the People’s government on its big, bold plans to buy Hummer. That in and of itself should be enough to kill the deal. But there is some talk that the little-known construction machinery company, with no experience in the auto industry, is hungry enough for Hummer to use an offshore vehicle to buy the GM brand if it fails to win Chinese regulatory approval.

“Tengzhong has not given up hope yet to win government approval, but buying Hummer through an offshore investment vehicle could be an option if it can’t get the green light,” a source close to the deal, who asked for anonymity due to the sensitivity of the issue, told our reporters Fang Yan and Jacqueline Wong report from Shanghai.

Analysts told them the production base of the off-road sport utility vehicle would have to remain outside China to get such a deal to fly. That could be a monster-truck-sized roadblock, since it would mean the company would not have access to China’s biggest asset — its giant, cheap labor force.

Tuesday’s highlights:

* Laboratory equipment maker Thermo Fisher Scientific Inc has offered $6 billion to buy Millipore Corp, according to a person familiar with the situation, in a deal that would increase its presence in the manufacture of biotech drugs.

* Morgan Stanley is in late-stage talks to sell its stake in China International Capital Corp to Kohlberg Kravis Roberts & Co and TPG Capital for more than $1 billion, according to three sources familiar with the situation.

* Schlumberger’s got some explaining to do on Smith, says Breakingviews columnist Christopher Swann.

For more on these and the rest of the latest deal-related stories from Reuters, click here.

And elsewhere (some external links may require subscriptions):

* Rupert Murdoch’s News Corp is close to buying a stake in Rotana Media, the broadcast and music group owned by Saudi investor Prince Alwaleed bin Talal, the FT says.

* Electricite de France SA may use power assets and cash to buy a 1.6 billion euro ($2.2 billion) stake in Edison SpA, Italy’s second-largest power producer, Bloomberg reports.

* Canada’s Brookfield Asset Management Inc (BAMa.TO) is preparing to bid for a large stake in No. 2 U.S. mall owner General Growth Properties Inc (GGWPQ.PK), aiming to outbid Simon Property Group Inc (SPG.N), the Wall Street Journal reports.

* Brazilian steelmaker CSN (CSNA3.SA)(SID.N) failed in its bid to buy 33.3 percent plus one share of Portuguese cement maker Cimpor (CPR.LS) after some large shareholders refused to sell, two Portugal-based newspapers said in their online editions. Reuters story here.

* Indian engineering and construction firm Larsen & Toubro (LART.BO) plans to list or partly sell stake in two finance units over the next 12 months, the Business Standard newspaper reported on Tuesday. Reuters story here.

* U.S. private equity firm Apollo Management is looking to pick up a stake in struggling U.S. jewellery retailer Zale Corp (ZLC.N), the Wall Street Journal says, citing people familiar with the matter.

* British takeover rules may have to be toughened in order to raise the hurdles to hostile bidders, Trade Minister Mervyn Davies tells the Daily Mail.

Schlumberger’s stock is down, while shares of Smith are up 8 percent. Is Schlumberger’s $11.34 billion all-stock deal for Smith International a bet on gas, a sign of more consolidation to come, overpriced, or a shrewd move?

Here’s what is being said on the Web:

Schlumberger sees gas drill growth in Smith deal (Reuters)
“No doubt, in the long-term, shale gas is going to be one of the big new energy sources in the U.S. and overseas,” Schlumberger Chief Executive Officer Andrew Gould said, “and the capacity to serve that market in North America is of great interest to me.”

Behind Schlumberger’s Smith Deal: A Big Gas Bet (NYT)
“Schlumberger’s $11 billion takeover of smaller rival Smith Industries seems to be a big bet on unconventional natural gas production in the United States,” reports The New York Times.

Drilling Complexity Drives $11B Schlumberger-Smith Deal (WSJ)
“The acquisition underscores the growing difficulty of tapping hard-to-reach oil and natural gas deposits — both in offshore, deepwater developments and in service-intensive shale-rock formations, where well costs are high. It also signals how competition among oilfield service providers for more intricate projects is heating up.” – WSJ

Did Schlumberger Overpay for Smith International? (WSJ)
“Citigroup: “We expect a loud chorus of analysts to claim that Schlumberger is overpaying for Smith. In our view, they are wrong.” – WSJ

This story was written before the deal was announced but provides some good background:
Merger could put Schlumberger back in the bit business (The Houston Chronicle)
“A possible merger between Schlumberger and Smith International could find the world’s largest oil field services company re-entering a business it left just a few years back and swallowing a major Houston firm in its quest to win more business with global oil companies,” reports The Houston Chronicle

A Flood Of Energy M&A: Schlumberger Buys Smith For $11 Billon (24/7 Wall St.)
“The acquisition by Schlumberger Ltd. of competitor Smith International Inc. for $11 billion could be another sign that mergers and acquisitions in the energy sector will pick up in 2010,” reports 24/7 Wall St.