Chillin' out till it needs to be funded
The Chinese candy maker Hsu Fu Chi has been in news since the morning today with Nestle after a half a dozen global acquisitions in bottled water finally turned to its deal makers for a bid to sweeten its Chinese candy presence. Kraft purchased Cadbury a 18 months back, where it is already a known brand in China, it has just entered China and the rest of Asia and UK with Cadbury. Nestle is probably going to run foul of the new Anti Monopoly rules in China however. Hsu Fu Chi has a substantial market presence in China with a 6.6% market share and its capitalization of $2.59 billion or 16.71 billion Yuan implying an ownership stake of 70% will cost Nestle 11.7billion Yuan or $1.81 billion. If Nestle plans to use stock for the purchase things might get even more murkier for the authorities in China
Nestle in China
In China, Nestle started the acquisition of regional bottled water companies Dashan (Yunnan ‘cluster’) and Ganten (Guangdong ‘cluster’) last February after which the new competition rules required direct government approval for all M&A transactions based on market shares and value of the transaction. With these successful acquisitions Nestle would be in the top 3 in China in bottled water where it has been a late entrant in many markets including India(not yet) and the UK. Hsu Fu Chi is listed in Singapore and before suspending trading the shares were priced at S$ 4 per share(Xinhua)
Before tackling the biggest Chinese confectioner Hsu Fu Chi, Nestle had even pressed discussions with ready foods company YinLu Foods in April. While the candy maker is worth $1 bln in annual sales in 2011 with latest quarter sales of RMB 1.5 bln , Yin Lu foods is also worth $900 mln in annual sales in 2010. Nestle is right now a minor player in the Confectionary market and anti trust regulators fwould find it easier to approve the acquisition,
Even before the current Anti Competition statute was put in place, Coca Cola was unable to complete its purchase of Huiyuan foods for $2 bln as competition regulators blocked the deal. Global Ad company Publicis however completed its purchase of G4 in China just last year for the Nestle Greater China account. Also China’s advertising business has been exploding now making it seem like a blind spot for Chinese regulators. MNC campaigns won all the Gold Lions for the China contingent at Cannes incl a Grand Prix for Samsonite.
For the foods and confectionary business, turnovers of $ 0.5-1 bln or 4-5 billion Yuan would be material but in a fragmented market worth nearly a100 billion Yuan and more. Nestle’s best hope is it is able to pursue a market development strategy and a larger potential Chinese foods market for all domestic players with the regulators. Manufacturing contraction s unlikely to have hit foods business players. Global foods and FMCG players have also been cooperating with Chinese authorities and keeping prices down at retail stores in a bid to contain end-inflation for consumers. Ibncreased Consumer spending and servicing the same is a priority objective as per the directions of he recent 5 year plan approved till 2016 and Hsu Fu Chi reiterates it has been looking for a strategic partner for its business
Nestle aims to continue global leadership in Food, nutrition and wellness. Vevey, Switzerland based Nestle’s sales of $22.7 billion in Q1 relied on a double digit growth in Asia at 12%, excluding deals and inorganic additions. Aided by the swift rise in the value of the Swiss Franc, Input cost inflation will impact a further $3 to $3.5 billion on the balance sheet for the full year.