Nestle Expands Chinese Market Share

Aug. 18, 2011 - PRLog -- Nestlé has entered into an agreement to acquire 60% of the Chinese sweets company Hsu Fu Chi International for approximately $1.7bn. The food group is trying to bolster its Chinese presence by purchasing one of the biggest players in the country's confectionery category. Under the terms of the deal, the Hsu family will own the remaining 40% of the company with its current chief executive and chairman, Hsu Chen, continuing to lead the company. The transaction is still subject to regulatory approval in China. Hsu Fu Chi’s portfolio includes sweets, cereal-based snacks, packaged cakes and the traditional Chinese snack sachima; in 2010 it reported sales of $798m. Nestle offered S$4.35 in cash for each share of Singapore-listed Hsu Fu Chi, an 8.8% premium over the stock’s closing price on Friday. Under the terms of the agreement, the Hsu family, which founded Hsu Fu Chi, will retain 40% of the business, and run it as a joint venture with Nestlé.

The deal is one of the biggest ever by a foreign company in China. Analysts said that companies are keen to increase their presence in fast-growing emerging markets, in an effort to offset a slowdown in demand from developed markets, such as the US or Europe. Leading global companies are trying to make a foray into the Chinese market in response to the rise of a more affluent middle class in China, turning the country into one of the key consumer markets in the world. However, Nestle's deal will require approval from China's commerce ministry, Cayman Island courts, where the company is incorporated, and shareholders of Hsu Fu Chi. Coca-Cola discovered the challenge this can pose when its effort to buy the Huiyuan Juice Group for $2.4bn was blocked by the Chinese authorities in 2009. An analyst at the China Market Research Group, predicted Nestlé should avoid the same fate, and that the deal would pay off for the European company.

Earlier this year, Nestlé took a 60% share in Yinlu, which makes items including rice products and dairy drinks. Elsewhere, spirits giant Diageo was recently granted regulatory approval to take a majority stake in the Sichuan Chengdu Quanxng Group, which itself has a major share in Shui Jing Fang, the highly popular brand of baiju, a rice wine. Diageo had previously held a substantial minority stake in Sichuan Chengdu Quanxng Group, but now controls 53%, a rare occasion of a foreign firm assuming such a role.

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