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Nestle Said to Hold Takeover Talks With Chinese Candy Maker

Nestle SA (NESN), the world’s largest food company, has been holding talks to buy Hsu Fu Chi International Ltd. (HFCI), a Chinese snack and candy maker with a market value of about $2.6 billion, said people familiar with the matter.

The discussions have been on and off for about two years, according to three people, who declined to be identified because the talks are private. It isn’t clear whether Nestle will reach a deal, and other suitors have also been examining the Singapore-listed company, these people said.

Nestle aims to catch up with rivals such as Unilever that get a larger proportion of sales from faster-growing emerging markets. Chief Executive Officer Paul Bulcke plans to get 45 percent of revenue from developing countries by 2020, compared with about a third now.

“Hsu Fu Chi has long been doing business in China and its brand and products are well known among people of all ages,” Wang Bing, a Shanghai-based analyst with Phillip Securities Pte, said by phone today. “The deal makes sense for Nestle because it may expand its food and snack portfolio in the fastest- growing consumer market and beef up its distribution.”

Hsu Fu Chi, which sells candies, cakes and sachima pastries, reported 2010 profit rose 31 percent to 602.2 million Chinese yuan ($93 million) as sales increased 14 percent to 4.31 billion yuan, according to Bloomberg data. The shares have risen 72 percent in the past year, giving the company a market capitalization of S$3.18 billion ($2.6 billion).

Photographer: Tim Graham/Getty Images

A woman works at a candy store in the Yu Garden Bazaar Market, Shanghai, China. Close

A woman works at a candy store in the Yu Garden Bazaar Market, Shanghai, China.

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Photographer: Tim Graham/Getty Images

A woman works at a candy store in the Yu Garden Bazaar Market, Shanghai, China.

Hsu Brothers

The Dongguan, Guangdong-based company, established in 1992 by four brothers from Taiwan, has 45 large-scale production plants and can make more than 700 different types of confectionery products. Chairman and Chief Executive Officer Hsu Chen, the second oldest of the brothers, is the 25th richest man in Taiwan, according to Forbes.

Nina Caren Backes, a spokeswoman for Vevey, Switzerland- based Nestle, said the company doesn’t comment on market speculation. Officials at Hsu Fu Chi’s offices in Dongguan, China couldn’t be reached for comment after normal business hours.

Nestle got about a 10th of its 93 billion Swiss francs ($110 billion) of revenue last year from its chocolate and confectionery unit. The company’s recent purchases in emerging markets include Russia’s Ruzskaya Confectionery Factory in 2007 and a 51 percent stake in Turkish chocolate and biscuits maker Dogan & Balaban Gida in December.

Making Acquisitions

The maker of Crunch bars had more than 16 billion francs of cash at the end of last year after it sold a majority stake in Alcon Inc., a maker of contact-lens solutions, to Novartis AG. Bulcke said June 8 the company’s first priority with the money is investing in existing businesses, though it’s also considering “bolt-on” acquisitions.

Nestle’s sales in emerging markets need to increase at least 8 percent to 10 percent a year for the company to reach its goal of getting 45 percent of revenue from that area by 2020, Frits van Dijk, head of the company’s business in Asia, Africa, Oceania and the Middle East, said last month at an investor conference. That’s an “absolute possibility,” he said.

The pace of acquisitions has been faster in developed markets because some companies are easy to integrate and have the right “chemistry,” the executive said at the time. The company’s 2002 proposed purchase of Chocolates Garoto SA was blocked by Brazil’s antitrust regulator.

In China, Yum! Brands Inc., owner of the KFC fast-food chain, offered in May to buy Little Sheep Group Ltd. (968) in a deal that valued the operator of hot pot restaurants at HK$6.7 billion ($861 million).

Diageo Plc (DGE), the world’s largest distiller, said June 27 it received regulatory approval to take a majority stake in Sichuan Chengdu Quanxing Group Co., the parent of liquor maker Sichuan Swellfun Co., as it seeks to sell more spirits in emerging markets to counter sluggish European and U.S. growth.

To contact the reporters on this story: Cathy Chan in Hong Kong at kchan14@bloomberg.net; Jeffrey McCracken in New York at jmccracken3@bloomberg.net; Jacqueline Simmons in Paris at jackiem@bloomberg.net

To contact the editor responsible for this story: Celeste Perri at cperri@bloomberg.net

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