China Unsated by U.S. Ham Means More Food Deals: Real M&A

After buying up everything from U.S. hogs to British breakfast cereals, China still has an appetite for food deals.

Cofco Corp., China’s largest grain trader, yesterday agreed to invest in Singapore-listed Noble Group Ltd.’s agricultural trading unit, one week after saying it will take a majority stake in Dutch grain trader Nidera BV. Cofco and other Chinese buyers are racing to secure access to food supplies to meet the growing demand for staples in the world’s most populous country.

Food-related acquisitions by Chinese buyers reached a record in 2013, led by the $4.7 billion purchase of Virginia pork processor Smithfield Foods Inc., according to data compiled by Bloomberg. As China’s middle class becomes richer and tastes broaden, companies including Tnuva Food Industries Ltd., Israel’s largest food maker, may be among the next targets. Beef producer Australian Agricultural Co. also may draw interest, said Gilbert & Tobin.

“There is a very strong motivation to control their own supply chains,” said Tim Benton, professor of population ecology at the U.K.’s University of Leeds. China’s domestic food production alone can’t meet the country’s needs, he said.

According to the agreement with Hong Kong-based Noble, Cofco will own 51 percent of a new division that will be the Chinese company’s primary means of obtaining food ingredients worldwide. Noble is Asia’s biggest commodity trader by sales.

Food Security

In Israel, Shanghai’s Bright Food Group Co. is considering buying Tnuva, according to a person familiar with the matter, who asked not to be identified as the information is private. In 2012, Bright Food agreed to buy 60 percent of British cereal maker Weetabix Ltd.

“Anything that results in having access to food products or the infrastructure that takes them from the farm to the port and out to sea, there’ll be demand for,” Neil Pathak, a Melbourne-based mergers and acquisition lawyer with Gilbert & Tobin, said in a phone interview. “In Asia there’s going to be incredible growth, and food security is going to become increasingly important.”

That may turn Australia’s biggest beef producer, Australian Agricultural, into a takeover target, Pathak said. The Milton, Queensland-based company, which is building a new slaughterhouse in Darwin in northern Australia to increase exports, had a market value yesterday of $618 million.

Matthew Horan, a spokesman for Australian Agricultural at Brisbane-based Horan Communications, declined to comment on the prospects of any bid.

Record Spree

The value of proposed, pending and completed acquisitions in food and agriculture industries by Chinese buyers soared to $16.9 billion in 2013, the most on record and up from $2.4 billion in 2012, according to data compiled by Bloomberg. WH Group Ltd.’s purchase of pork supplier Smithfield, a deal valued at almost $7 billion including net debt, was the biggest Chinese purchase of a listed American company. WH Group changed its name from Shuanghui International Holdings Ltd. in January.

Already the biggest consumer of meat globally, China may double beef imports by 2018 as rising wealth changes diets, Rabobank International, which specializes in agricultural research, said in December.

The world may need an extra 1 billion tons of cereals and 200 million more tons of livestock products every year by 2050 as the global population grows to 9 billion from 7 billion, according to a 2011 report by the Food and Agriculture Organization of the United Nations.

Changing Tastes

Beyond beef and grains, Chinese buyers are also pursuing brands that may later suit tastes at home, said Meredith Paynter, a partner at King & Wood Mallesons.

Bright Food’s bet on Weetabix, a product seldom eaten in China, is a good illustration, she said. The chase may also bring Chinese buyers to Treasury Wine Estates Ltd., the $2.1 billion maker of Penfolds Grange wine, Sydney-based Paynter said in a phone interview.

“It’s a changing-palate, changing-taste type proposition,” she said. “They are a potential target and have a fantastic portfolio of brands, particularly the Penfolds stable.”

Daniel Ellis, a spokesman for the Melbourne-based winemaker, declined to comment.

Other household names, particularly in Europe, have already attracted interest from Chinese buyers. Hony Capital Ltd., a Chinese private-equity firm, has examined a potential offer for United Biscuits Holdings Ltd., the maker of Jacob’s Cream Crackers and McVitie’s Jaffa Cakes, people familiar with the matter said in January. The bid could involve teaming up with a corporate buyer, said the people, who asked not to be named at the time because the deliberations were private.

Deal Hurdles

China’s acquisition spree may face regulatory and other hurdles. Former Israel intelligence agency chief Ephraim Halevy has said the sale of assets including Tnuva Food to Chinese buyers threatens national security.

“If we do not wake up in time, we will find that they will take over not only our food, but our academia,” he told a parliamentary panel on Feb. 25. “We must organize in order to defend Israeli assets.”

Overseas suitors for Australian Agricultural could encounter regulatory barriers in seeking control of the 190-year-old company, Pathak said. Australia in November rejected a planned $2 billion takeover of GrainCorp Ltd., the country’s biggest crop handler, by Archer-Daniels-Midland Co. on national interest grounds.

Investment Trends

Investments in the U.S., the pricing center for corn, soybeans and other crops, and a key market for Cofco, would face challenges such as intellectual-property protection, said Li Qiang, the chairman of Shanghai JC Intelligence Co. who has analyzed agriculture for more than 30 years.

All the same, China’s growing population and its rising demand for food, particularly in urban areas, means acquisitions aren’t likely to stop any time soon, Adam Richardson, a Sydney-based economist at HSBC Holdings Plc, said by phone.

“It’s certainly something we’d expect to drive broad investment trends going forward,” he said.

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