Nestle in acquisition talks with China sweet firm

Analysts said it would make sense for Nestle to buy a company in an emerging market due to sluggish sales at home.

However, acquisition deals in China are often tough to complete because they are subject to approvals from Chinese authorities, which have rejected deals before.

One such rejected deal was Coca Cola’s 2009 bid for juice maker China Huiyuan.

Hsu Fu Chi, which has a market capitalisation of about $2.6bn, said it has engaged in preliminary discussions with Nestle for a possible deal that may or may not lead to an offer being made for the shares of the company.

“We won’t deny they are one of the companies that we’ve been in touch with, but they are not the only one,” a Hsu Fu Chi spokeswoman said, referring to Nestle.

A Nestle spokeswoman declined to give further details on the nature of the talks.

“We believe that the deal with Hsu Fu Chi would make sense. Nestle stated several times that it intended to increase its exposure in the emerging markets to 45 per cent of sales by 2020,” a Swiss private bank said.

Nestle’s sales in greater China rose almost 15 per cent in local currencies to 2.8 billion Swiss francs in 2010, making it the Swiss-based company’s fastest-growing region.

The strong Swiss franc, which has recently risen to record highs against the euro and the dollar, will make acquisitions abroad cheaper, another Swiss private bank said.

Also, Nestle has been sitting on a pile of cash since it sold its remaining stake in eyecare group Alcon.

In April, it said it planned to take a 60 per cent stake in China’s Yinlu Foods Group for an undisclosed price.

Hsu Fu Chi, which is based in China’s southern Guangdong province and makes Chinese snacks such as peanut candies, pop jellies and sachima rice snacks, is over 50 per cent held by the Hsu family and about 15 per cent held by Baring Private Equity.

While the deal may look attractive for Nestle, it won’t be an easy process to wrap it up.

Coca Cola lost the Huiyuan bid, while it took more than a year before Diageo won Chinese approval to raise its stake in the biggest shareholder of Chinese white spirits group Sichuan Shuijingfang.

Nestle UK employs around 7,000 people across 19 sites and has a turnover of more than £2bn a year. It is headed by executive chairman, Paul Grimwood, who is originally from Yorkshire.