Last week, the Swiss group confirmed to ConfectioneryNews.com that it was in talks with the Singapore listed Chinese sugar confectionery and snacks manufacturer.
60 per cent stake
Under the deal, Nestlé said it intends to acquire 60 per cent of the family owned Hsu Fu Chi, whilst the Hsu family will own the remaining 40 per cent. The current CEO and chairman, Hsu Chen, will stay in charge, said the food giant.
The completion of the deal is subject to regulatory approval by the Chinese competition authorities.
Andrew Wood, senior research analyst at Sanford Bernstein said the confectionery category has been one area where Nestlé is a second-tier player behind strong category leaders in Mars/Wrigley and Kraft/Cadbury.
In relation to this deal, the analyst notes:
“Clearly this highlights Nestlé’s continued focus on growing its emerging markets business…through both organic growth and small, bolt-on M&A. We are supportive of this as, despite a strong emerging markets (Ems) business representing almost 40 per cent of sales, Nestlé continues to lag its European Food peers (Danone and Unilever) who both have over 50 per cent of sales in the EMs.
“We are pleased to see that Nestlé is clearly dedicated to the confectionery category, as we have always believed it is an attractive category in general…and…. a particularly strong category in China.”
Hsu Fu Chi
Hsu Fu Chi was started in 1992 by four Taiwanese brothers. Market watchers, Sanford Bernstein, estimates that it is the No 2 confectionery player in China with 4.2 per cent market share (trailing only Mars, which has a 15.5 per cent share).
In 2010, it had reported sales of €566m and an EBIT margin of 17.3 per cent.
Operating four large-scale factories in China and employing 16,000 people, the firm makes sugar confectionery, cereal-based snacks, packaged cakes and the traditional Chinese snack sachima.
Analyst Wood said the decision of Nestlé management to leave the current CEO Hsu Chen in charge will "enable the company to continue to feel 'local', while allowing it to also benefit from Nestlé’s infrastructure, organisation, resources."
He highlights that at some point in the future Nestlé "may have the opportunity to more fully integrate Hsu Fu Chi’s business into its overall China business…and thereby extract significant synergies."
Chinese drinks market
In April, the global food giant announced that it has acquired a 60 per cent stake in Yinlu Foods Group, well-established brand in China and a major distributor of ready-to-drink peanut milk and instant canned rice porridge.
Nestlé reported sales of €2.27bn in China in 2010, due to the growth there of its global brands including Nescafé, Nan, Maggi, KitKat as well as a hike in demand for local brands such as Haoji and Totole.