Agro Perspectiva

Will Hsu Fu Chi and Nestle Join hands?

12.07.2011 11:29 "Agro Perspectiva" (Kyiv) — Nestle, the world’s largest food maker, has confirmed that it is in preliminary takeover discussions with Chinese snack and candy maker Hsu Fu Chi International. The two companies have been in talks regarding the partnership for a few years, said a spokeswoman for Hsu Fu Chi. The Guangdong-based confectioner, with a market value of about $2.6 billion, generates all its revenue in China where it sells candies, chocolates and pastries. While Hsu Fu Chi needs a partner like Nestle who has a strong international network to expand overseas, Nestle will also benefit from Hsu Fu Chi’s advantages in the Chinese market, said Li Yi, a Shanghai-based research analyst with the world’s leading market research firm, Euromonitor International. «Besides the long history and sound recognition in the Chinese confectionery market, Hsu Fu Chi has a strong nationwide distribution network, not only in first and second tier cities but also covering the third and fourth tiers as well as some rural areas,» she said. Li believes that the takeover will help Nestle solve the shortage of local brands in its confectionery business, since Hsu Fu Chi is very professional when it comes to catering to local needs, «no matter how the product tastes or what its unique selling points are, particularly when it comes to ’mix-and-match’ supermarket sales». These ’mix-and-match’ sales refer to supermarket sales, where the customer can choose many different kinds of confectionary and mix them together in a bag. Although the deal may encounter scrutiny from the Chinese government which rejected Coca-Cola’s $2.4 billion bid to buy Chinese soft drink maker Huiyuan Juice in 2009, Li thinks the two cases are different. «Based on the research findings of Euromonitor, Huiyuan was the biggest domestic company in fruit and vegetable drinks at that time,» said Li. «Coca-Cola was already a giant in the beverage market. If they had successfully taken over Huiyuan, they would have been even stronger. This was regarded as a potential threat to the market. That was due to Chinese anti-monopoly laws, Coca-Cola failed to get Huiyuan.» Compared to the Coca-Cola case, the possibility of Nestle being rejected by the government is much more slim, said Li, since Nestle’s share of the sugar confectionary market was just one or two percent during the Euromonitor’s market research period, while Hsu Fu Chi was around four or five percent. But she also believes that the government will evaluate more than just market considerations. Hsu Fu Chi is also talking to companies in the US, Europe and Japan to find a partner that will help the company to forge a long-lasting brand, said Christine Sun, a spokeswoman for the Chinese confectioner. Hsu Fu Chi’s 2010 profit rose 31 percent to 602.2 million yuan ($93 million) as sales climbed 14 percent to 4.3 billion yuan, according to Bloomberg data. Shares were sold publicly in Singapore in December 2006. The shares have risen 72 percent over the past year, giving the company a market capitalization of S$3.18 billion ($2.6 billion). The mainland-registered company, founded in 1992 by four brothers from Taiwan, has 45 large-scale production plants and makes more than 700 different types of confectionery products, according to its website. Chairman and Chief Executive Officer Hsu Chen, the second oldest of the brothers, is the 25th richest man in Taiwan, according to Forbes. The deal between Nestle and Hsu Fu Chi would be one of the biggest foreign takeovers of a Chinese company.