H.J. Heinz May Target Two Asian Baby-Food Makers, Analyst Says

H.J. Heinz Co.’s strategy to build an infant-formula business in China may include buying a regional baby-food maker, according to an analyst at Sanford C. Bernstein & Co.

Potential takeover targets for Heinz include Rockville, Maryland-based Synutra International Inc., whose products are sold exclusively in China, New York-based analyst Alexia Howard said today in a note to clients. The other is Ausnutria of Changsha, China, she said.

Heinz said in February that it would start selling formula this year in China and Russia, markets where it sells baby food. Pittsburgh-based Heinz is the world’s fifth-biggest seller of infant-nutrition products, reporting $1.1 billion in revenue in fiscal 2009, or 11 percent of the total. Ketchups and sauces made up 42 percent.

“Heinz continually evaluates bolt-on acquisition opportunities as part of our overall growth strategy,” said Michael Mullen, a Heinz spokesman. He wouldn’t comment specifically on the analyst report. Representatives of Synutra and Ausnutria couldn’t be reached for comment.

Heinz, the biggest ketchup maker, rose 27 cents to $45.73 at 11:45 a.m. in New York Stock Exchange composite trading. Ausnutria, which held an initial public offering in Hong Kong in October, fell 21 cents to HK$5.37 on April 28. Synutra rose 44 cents to $22.92 on the Nasdaq Stock Market.

Growing Market

The Chinese milk-formula market, which includes products for infants and toddlers, grew 19 percent to $4.4 billion in 2009, according to market research company Euromonitor International of Chicago.

Heinz has said its formula rollout doesn’t preclude acquisitions in the baby-food sector in Asia.

“To the extent we can find the right acquisition, we would look there as well,” Chief Financial Officer Art Winkleblack said in a February telephone interview. “The infant-formula market is still highly fragmented outside the U.S. In China, there are eight or ten players who have a piece of the pie, and not all of them are folks you would recognize.”

The $34.3 billion global baby-food category, which includes formula, has been consolidating, and the 2008 melamine-contamination crisis led Chinese consumers to favor foreign producers, Bernstein’s Howard said. Nestle SA of Vevey, Switzerland, acquired Gerber Baby Foods from Novartis AG in August 2007, and Danone SA bought Numico later that year.

Mead Johnson

Mead Johnson Nutritional Co., the maker of Enfamil infant formula that was split off from parent Bristol-Myers Squibb Co. last year, may draw bids from Danone, Nestle or Heinz, analysts including Christopher Growe with Stifel Nicolaus & Co. in St. Louis and Bank Vontobel AG’s Claudia Lenz in Zurich have said.

Heinz is unlikely to buy Mead Johnson, given the target’s size, Howard said. Mead Johnson has a market capitalization of about $10.2 billion, compared with about $14.4 billion for Heinz.

“For Heinz, the optimal solution might be to acquire a regional player, particularly in China, with a moderate share position from which to build,” Howard said in the note.

Synutra’s founder and chief executive officer, Liang Zhang, owns two-thirds of the company’s shares, according to Bloomberg data. Sales at the company, which is fifth in market share in China’s infant-formula and baby-food market, declined 14 percent in 2009 after the Chinese government found eight lots of its U-Smart series of formula products had been contaminated with melamine in September 2008, according to the company.

Melamine is a chemical used in the production of plastics that can also be used to make protein levels in watered-down milk appear higher. Milk powder tainted with the chemical killed at least six babies and sickened about 300,000 others in 2008, according to government figures.

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