Hsu Fu Chi International Ltd. (HFCI), China’s biggest confectioner by market value, said it’s in talks to be acquired by potential suitors including Nestle SA (NESN) in what would be the largest overseas purchase of a Chinese company.
Nestle, the world’s largest food maker, is assessing a bid for Hsu Fu Chi and the two companies have been in talks on a partnership for a few years, Christine Sun, a spokeswoman for the Dongguan, Guangdong-based company, said by telephone today. Nestle didn’t immediately respond to a request for comment.
Hsu Fu Chi is valued at S$3.2 billion ($2.6 billion) on the Singaporeexchange, where trading of its stock was suspended before the start of trading today. Nestle, based in Vevey, Switzerland, sat on more than 16 billion francs ($18.8 billion) of cash at the end of last year and has said it will consider making “bolt-on” acquisitions.
“Strategically, we would view the deal positively since it would give Nestle access to China’s fast-growth $6 billion confectionery market and allow the group a number of international cross-selling opportunities,” MF Global analysts including Andy Smith wrote today in a research note.
Nestle amassed a cash pile after receiving $28.3 billion in August for a majority stake in the Alcon eye-care division. Still, the food company has mostly shied away from major acquisitions, its biggest recent purchase being Kraft Foods Inc.’s North American pizza business for $3.7 billion.
Nationwide DistributionBuying Hsu Fu Chi would give Nestle access to nationwide distribution in China’s confectionary market, according to researcher Euromonitor International. Hsu Fu Chi, which generates all its revenue in China, may need Nestle to expand overseas, according to Ben Cavender, an analyst with China Market Research in Shanghai.
“They want to go international and they don’t have resources, capabilities necessary to do that themselves,” Cavender said. “Having somebody like Nestle, who has a really strong international network, really helps those brands.”
An acquisition of all of Hsu Fu Chi at its current market value would be the largest on record of a Chinese firm by a company based outside the country, according to Bloomberg data.
An overseas offer may encounter regulatory scrutiny from the Chinese government, which blocked Coca-Cola Co.’s bid for the Asian nation’s biggest domestic juice maker China Huiyuan Juice Group Ltd. in 2009 because of concern that the tie-up would have hurt competition.
On-Off TalksDiscussions between Nestle and Hsu Fu Chi have been on and off for about two years, according to three people, who declined to be identified because the talks are private. It isn’t clear whether Nestle will reach a deal, and other suitors have also been examining the Singapore-listed company, these people said.
Nestle’s sales in emerging markets need to increase at least 8 percent to 10 percent a year for the company to reach its goal of getting 45 percent of revenue from that area by 2020, according to Frits van Dijk, head of the company’s business in Asia, Africa, Oceania and theMiddle East.
“It’s very difficult for Nestle to organically grow its distribution and logistics in China,” said Cavender. “It helps for them to find companies like Hsu Fu Chi and bring their product portfolio under their umbrella.”
Nestle was little changed at 52.65 Swiss frances as of 10:30 a.m. in Zurich trading.
Profit GrowthHsu Fu Chi, which first sold shares to the public in Singapore in December 2006, is also talking to companies in the U.S., Europe and Japan, Sun said.
“Hsu Fu Chi wants to find a partner that will help us to forge a long-lasting brand,” Sun said.
Hsu Fu Chi’s profit rose 31 percent to 602.2 million yuan ($93 million) in 2010 as sales climbed 14 percent to 4.3 billion yuan, according to Bloomberg data. The shares have risen 72 percent in the past year.
The company, founded in 1992 by four brothers from Taiwan, has 45 large-scale production plants and can make more than 700 different types of confectionery products, according to itswebsite. Chairman and Chief Executive Officer Hsu Chen, the second oldest of the brothers, is the 25th richest man in Taiwan, according to Forbes magazine.
Nestle, the world’s largest food maker, is assessing a bid for Hsu Fu Chi and the two companies have been in talks on a partnership for a few years, Christine Sun, a spokeswoman for the Dongguan, Guangdong-based company, said by telephone today. Nestle didn’t immediately respond to a request for comment.
Hsu Fu Chi is valued at S$3.2 billion ($2.6 billion) on the Singaporeexchange, where trading of its stock was suspended before the start of trading today. Nestle, based in Vevey, Switzerland, sat on more than 16 billion francs ($18.8 billion) of cash at the end of last year and has said it will consider making “bolt-on” acquisitions.
“Strategically, we would view the deal positively since it would give Nestle access to China’s fast-growth $6 billion confectionery market and allow the group a number of international cross-selling opportunities,” MF Global analysts including Andy Smith wrote today in a research note.
Nestle amassed a cash pile after receiving $28.3 billion in August for a majority stake in the Alcon eye-care division. Still, the food company has mostly shied away from major acquisitions, its biggest recent purchase being Kraft Foods Inc.’s North American pizza business for $3.7 billion.
Nationwide DistributionBuying Hsu Fu Chi would give Nestle access to nationwide distribution in China’s confectionary market, according to researcher Euromonitor International. Hsu Fu Chi, which generates all its revenue in China, may need Nestle to expand overseas, according to Ben Cavender, an analyst with China Market Research in Shanghai.
An acquisition of all of Hsu Fu Chi at its current market value would be the largest on record of a Chinese firm by a company based outside the country, according to Bloomberg data.
An overseas offer may encounter regulatory scrutiny from the Chinese government, which blocked Coca-Cola Co.’s bid for the Asian nation’s biggest domestic juice maker China Huiyuan Juice Group Ltd. in 2009 because of concern that the tie-up would have hurt competition.
On-Off TalksDiscussions between Nestle and Hsu Fu Chi have been on and off for about two years, according to three people, who declined to be identified because the talks are private. It isn’t clear whether Nestle will reach a deal, and other suitors have also been examining the Singapore-listed company, these people said.
Nestle’s sales in emerging markets need to increase at least 8 percent to 10 percent a year for the company to reach its goal of getting 45 percent of revenue from that area by 2020, according to Frits van Dijk, head of the company’s business in Asia, Africa, Oceania and theMiddle East.
“It’s very difficult for Nestle to organically grow its distribution and logistics in China,” said Cavender. “It helps for them to find companies like Hsu Fu Chi and bring their product portfolio under their umbrella.”
Nestle was little changed at 52.65 Swiss frances as of 10:30 a.m. in Zurich trading.
Profit GrowthHsu Fu Chi, which first sold shares to the public in Singapore in December 2006, is also talking to companies in the U.S., Europe and Japan, Sun said.
“Hsu Fu Chi wants to find a partner that will help us to forge a long-lasting brand,” Sun said.
Hsu Fu Chi’s profit rose 31 percent to 602.2 million yuan ($93 million) in 2010 as sales climbed 14 percent to 4.3 billion yuan, according to Bloomberg data. The shares have risen 72 percent in the past year.
The company, founded in 1992 by four brothers from Taiwan, has 45 large-scale production plants and can make more than 700 different types of confectionery products, according to itswebsite. Chairman and Chief Executive Officer Hsu Chen, the second oldest of the brothers, is the 25th richest man in Taiwan, according to Forbes magazine.
