In what would be the largest acquisition of a Chinese company by a foreign buyer, Nestlé is in the final stages of mounting a multibillion-dollar bid for Hsu Fu Chi, the biscuit, cake and pudding maker that has helped to stoke the nation’s dangerous passion for sugar.
As the Chinese have grown more affluent and the middle class has begun to swell, sugar consump- tion has soared. Even now, with an estimated 92 million Chinese suffering from diabetes, demand continues to rise.
The takeover talks, described as “delicate”, may yet collapse despite the Swiss food giant’s determination to pull off a significant market land-grab in China. Before its shares were suspended on the Singapore stock exchange yesterday, Hsu Fu Chi was valued at about £1.6 billion. Analysts believe that Nestlé would probably have to add a hefty premium to win the brand recognition and huge share of the Chinese confectionery market that Hsu Fu Chi commands.
Nestlé’s impending bid for the company, whose bestsellers include the sugar-laden pastry Sachima, would be a key part of its plan to accelerate entry into Asian emerging markets and to extend its portfolio of confectionery for export.
Nestlé is thought to have been discussing a deal with Hsu Fu Chi for more than two years, but it is keen to move the process along more quickly as China’s appetite for all things sweet rages into the stratosphere. People close to the talks have told The Times that Nestlé’s challenges would not be restricted to wooing the Hsu Fu Chi board and the Chinese regulator. At least two Japanese food groups, one thought to be the confectionery giant Meiji, are interested and there are rumours that Nestlé may face further competition from America.
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Looming over the bid is the chequered history of big acquisition lunges by foreign companies in China. In 2009, Coca-Cola was blocked in its attempt to buy the country’s largest producer of fruit juice when regulators decided that it would harm competition.
Nevertheless, Nestlé may have been encouraged by last week’s announcement of a deal by Diageo to take control of a Sichuan manufacturer of traditional white spirit. The British drink group’s softly, softly navigation of Chinese takeover rules meant the deal took nearly a year and a half to complete.
Patience is still a virtue
In the background of any consumer products deal in China is the experience of Coca-Cola: defeat followed by a $1 billion reminder of why you first headed east.
When Coca-Cola made its $2.4 billion bid for Huiyuan Juice three years ago, the logic and the price seemed to satisfy everyone. Except Beijing.
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The blockage of the deal in 2009 smacked of revenge (for China National Overseas Oil Corporation’s thwarted 2005 bid for Unocal) and left a peculiarly bad taste: implied in the ruling was the sense that China was prepared to label anything home-grown — especially a well-known consumer brand — as an asset of strategic national importance.
Yet two years later Coca-Cola was rewarded for its patience. This year, it revealed that Minute Maid Pulpy had joined the esteemed cadre of brands within the company’s portfolio that had achieved annual sales of more than $1 billion. What was critical about this was that Minute Maid Pulpy was not only organically grown but also a brand that it had designed in China — the first time that a specifically emerging market product had made it into the billion-dollar club.
Those two extremes are now weighing on minds at Nestlé.