The Globe and Mail reported that Nestlé SA (PINK: NSRGY), the world’s largest food company, is in talks to buy Hsy Fu Chi International, a Chinese candy maker.
Analysts said it would make sense for Nestle to buy a company in an emerging market due to sluggish sales at home.
However, acquisition deals in China are often tough to complete because they are subject to approvals from Chinese authorities, which have rejected deals before. One such rejected deal was the 2009 Coca Cola bid for juice maker China Huiyuan.
Hsu Fu Chi, which has a market capitalization of about $2.6-billion, said it has engaged in preliminary discussions with Nestlé for a possible deal that may or may not lead to an offer being made for the shares of the company.
This can be seen as an opportunity for Nestlé to further expand on its already impressive growth in China:
Nestlé’s sales in greater China rose almost 15 per cent in local currencies to 2.8-billion Swiss francs in 2010, making it the Swiss-based company’s fastest-growing region.
And now may be the best time for the company to be purchasing abroad:
The strong Swiss franc, which has recently risen to record highs against the euro and the dollar, will make acquisitions abroad cheaper, Swiss private bank Mr. Wegelin said.
Also, Nestlé has been sitting on a pile of cash since it sold its remaining stake in eye care group Alcon. In April, it said it planned to take a 60 per cent stake in China’s Yinlu Foods Group for an undisclosed price.
Here’s some more information about the Chinese target:
Hsu Fu Chi, which is based in Dongguan in China’s southern Guangdong province and makes Chinese snacks such as peanut candies, pop jellies and sachima rice snacks, is over 50 per cent held by the Hsu family and about 15 per cent held by Baring Private Equity.
“If the company has the blessings of the family, the deal could go through,” said Tan Han Meng, an analyst at Singapore brokerage DMG & Partners.
“It (Hsu Fu Chi) offers about 6 per cent exposure to the China candy market and the company has very good cash flows. It’s one of the success stories from a young fast-growing company to one that has stabilized and has become a cash cow.”
Covestor models that hold Nestlé ADRs (as of 7/4) include:
- Buffettian Value by Zanshin Capital
- Large Cap Value by Bristlecone Value Partners
- International Hedged Equity by Swan Asset Management
- Dividend Value by Chris Santiago
Sources:
“Nestlé in talks with Chinese sweet maker” Lee Chyen Yee, Reuters via The Globe and Mail, 7/4. http://www.theglobeandmail.com/report-on-business/international-news/nestl-in-talks-with-chinese-sweet-maker/article2085822/
