China Consumer

Sweet deal

Nestlé to buy China candy firm

Sweet deal

Sugar rush: Nestlé wants to buy top China confectioner Hsu Fu Chi

Paul Bulcke, chief executive of Nestlé, the world’s largest food company, declared in February last year that he expects revenues from emerging markets to comprise 45% of the group’s total in 10 years (up from the current 38%).

And now he’s putting his money where his mouth is. Last week, Bloomberg reported that Nestlé is in talks to acquire Hsu Fu Chi, China’s largest listed confectionery company, although a final sale is yet to be confirmed.

Founded 19 years ago by the Hsu brothers, who still own a significant stake in the firm, Hsu Fu Chi started by selling a breakfast bar called Sachima. It now has more than 16,000 sales outlets and 100 sales affiliates. Revenue for the first quarter of this year was Rmb1.51 billion.

Analysts are talking about the classic win-win situation. “They [Hsu Fu Chi] want to go international and they don’t have the resources or capabilities necessary to do that themselves. So having somebody like Nestlé, who has a really strong international network, really helps those brands,” says Ben Cavender, an analyst with China Market Research in Shanghai.

But Cavender also says that Nestlé benefits through access to Hsu Fu Chi’s distribution network, as well as the getting control of its product portfolio.

According to the Guangzhou Daily, if Nestlé’s bid for Hsu Fu Chi is successful the deal will have a far-reaching impact on the confectionery sector, one of the most profitable sectors in the food industry. “The Nestlé-Hsu Fu Chi combination will definitely pose a big threat to many domestic confectionery companies,” the newspaper warns. (For more on Nestlé’s strategies to conquer China’s chocolate market, see WiC55).

If the deal goes through it could also be one of the largest yet by a foreign company in China. It will also need regulatory approval from the authorities. Regulators famously blocked Coca Cola’s $2.4 billion bid for juice maker Huiyuan, ostensibly because of competition concerns in the beverage market. At the time, critics sniffed that it was more a case of blocking a foreign buyer from taking control of a well-known domestic firm.

If so, could Beijing’s attitude to foreign takeovers have changed? Last month, after a 16-month wait, the UK drinks giant Diageo finally won regulatory approval for its bid to take control of local Sichuan white-spirits maker, Shui Jing Fang.

Nevertheless, the Hsu Fu Chi deal looks like a more complicated one, and certainly is of a much larger scale than the Diageo deal.

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