Deals

Nisha Gopalan is a Bloomberg Gadfly columnist covering deals and banking. She previously worked for the Wall Street Journal and Dow Jones as an editor and a reporter.

(Updated )

Before HNA Group Co. or Fosun International Ltd. came along with their takeovers of everything from beach resorts to football teams, the most famous of China's acquirers was Bright Food Group Co., a Shanghai government-backed firm best known domestically for its White Rabbit milk candy.

But after less than five years, Bright Food has called time on one of its highest-profile acquisitions. The company has agreed to sell Weetabix Ltd. to Post Holdings Inc., the North American maker of Honey Bunches of Oats and Alpha-Bits. The transaction, reported earlier by the Financial Times, could value the British cereal group at about 1.4 billion pounds ($1.8 billion).

It's an admission on Bright Food's part that figuring out how to make a Western brand appeal to a Chinese audience is tough. Breakfast in Asia's biggest economy isn't all toast and cereal -- hot meals of deep-fried dough sticks, rice noodles and congee are preferred.

Beyond sales of green-tea-flavored Alpen, Weetabix made little headway on the mainland. It didn't help that Bright Food had to contend with a global shift away from cereals and toward on-the-go breakfasts, like protein bars and smoothies, either. Sales stagnated, and Weetabix profit in the year ended Jan. 2, 2016, fell 15 percent to 84.6 million pounds.

Gone Soggy
The popularity of most breakfast cereals across Europe has been in decline, although Kellogg's brands still dominate
Source: Bloomberg Intelligence
Note: Shows breakfast cereals' market share in Western Europe of processed, frozen, canned and perishable.

At first glance, Bright Food looks to have struck a reasonable price for Weetabix. It acquired a 60 percent stake in 2012 in a deal that valued the group at 1.2 billion pounds, including debt. (Baring Private Equity Asia Ltd. now owns the other 40 percent.) But since then, the pound has depreciated 15 percent against the yuan, bad news also for Chinese-currency returns from sales.

Raw Deal
The British pound has slumped about 15 percent against the yuan since May 2012, when China's Bright Food Group acquired U.K. breakfast cereal maker Weetabix
Source: Bloomberg
Note: Shows G10 currencies.

It's a cautionary tale for other Chinese firms taking on truckloads of debt to make acquisitions aimed at sating local consumers' supposed hunger for a more Western lifestyle. Bright Food, whose former Chairman Wang Zongnan was jailed for bribery and embezzlement in 2015, didn't do its homework.

A recent McKinsey & Co. survey of offshore Chinese deals in the past decade found that about 60 percent, or some 300 transactions, created little or no value for the acquiring company. Reasons ranged from energy forays struck at the height of the commodities cycle to difficulty in integrating targets.

When it comes to M&A, often the hard work isn't in the buying, but rather bringing a deal back home. That's something China Inc., fresh from a record international shopping spree, would be wise to keep in mind.

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

(Updates second paragraph to reflect announcement of deal.)

To contact the author of this story:
Nisha Gopalan in Hong Kong at ngopalan3@bloomberg.net

To contact the editor responsible for this story:
Katrina Nicholas at knicholas2@bloomberg.net