Deal could see Nestlé gain fast-track access to China’s $6bn sweet market, analyst

By Jane Byrne

- Last updated on GMT

Related tags China Coca-cola

Swiss food giant Nestlé is in talks to buy leading Chinese confectionery firm Hsu Fu Chiin, a deal that would cost about $2.6bn.

Nestlé confirmed to this morning that it "is engaged in preliminary confidential discussions with Hsu Fu Chi."

The Swiss group added that it "has no further comments to make at this stage."

“Strategically, we would view the deal positively since it would give Nestlé access to China’s fast-growth $6bn confectionery market and allow the group a number of international cross-selling opportunities,”​ claims MF Global analysts.

Expansion in key Asian countries has long been earmarked as a strategy for the Swiss group as a means of compensating for sluggish growth in developed markets.

Hsu Fu Chi is one of China's largest confectionary and bakery manufacturers. It was started in 1992 by four Taiwanese brothers.

Nestlé reported sales of CHF 2.8bn (€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.

Instant-food partnership

In April, the global food giant announced that it has acquired a 60 per cent stake in Chinese food maker Yinlu Foods Group, expanding Nestlé’s instant-food offerings in a key growth market.

Family-owned Yinlu is a well-established brand in China and a major distributor of ready-to-drink peanut milk and instant canned rice porridge. The deal extends cooperation between the two companies, as Yinlu is a co-producer of Nestlé's Nescafé coffee in China.

Nestlé CEO Paul Bulcke noted the collaboration with Yinlu demonstrated its “long-term investment in China and our commitment to further developing local brands.”

However, that transaction, the financials details of which were not disclosed, is subject to regulatory approval by the Chinese authorities.

Regulations on ownership

While Western companies are looking to gain a foothold in the growing Chinese market, government regulations on foreign ownership are not aiding such acquisition plans.

In 2009, Chinese authorities, citing antitrust concerns, rejected a $2.4bn bid by Coca Cola to buy a leading Chinese soft drinks maker, Huiyuan Juice Group. Market watchers regarded the move as protectionist, though Chinese officials rejected such allegations.

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