The deal, which was announced earlier this month, is the largest overseas acquisition by a Chinese company in the food and beverage sector and could set a precedent for more acquisitions by businesses eager to acquire foreign brands.
“It is very rare for deals of this size to be done with Chinese state-owned enterprises,” said Michael Francies, managing partner of Weil Gotshal & Manges London office.
Shanghai-based Bright Food has been looking for acquisitions since 2010 when it acquired a 51% stake in New Zealand’s Synlait Milk, followed by an 87% stake in Manassen Foods Australia last year. The company covers every aspect of food production from farming, manufacturing, distribution and retail. Bright Food sees the acquisition as a chance to increase sales of Weetabix in China as the country becomes more conscious of healthy eating initiatives.
Private equity firm Lion Capital has owned Weetabix since 2004. Weetabix is the second largest maker of breakfast cereals and cereal bars. Kellogg’s tops the number one spot in the UK market. Retaining a 40% stake, the group will be an active part of the new merger.
“Typically with private equity firms, they look for a clean sale and exit from their portfolio company investments, but in this case, Lion will continue its involvement through the joint venture,” said Shanghai-based partner Anthony Wang. The joint venture structure means both parties will have to cooperate to make the deal work.
Lion Capital also sees the move as a perfect opportunity to introduce its products to the mainland market. “It’s a good strategy for Western companies,” said Wang. The Chinese people are known for their adoration of brand names and through this deal the UK outfit could become an instant hit. “Western companies recognise that you need local expertise,” added Francies.
In cross-border deal making of this size, language and culture can often emerge as difficult areas. “Complications also arose because it was a state-owned enterprise,” said Francies. “It’s complicated enough doing an outbound deal, but Bright Food being an SOE added another layer of complexity,” added Wang.
Controlling publicity was also another factor in a deal this size – there had to be no leaks to ensure it could proceed. “Some of the deals that have not made it through can be because of publicity issues,” said Francies.
The deal is still subject to Chinese regulatory approval and is expected to close in the second half of 2012. It shows the increasing determination of Chinese companies to acquire abroad. In the past, this trend has centred on industries like automobiles, but this deal shows a shift towards new business sectors. Bright Food and Lion Capital have opened the gates for more transactions in the food and beverage industry and rivals will soon follow.
By David Tring
China Securities Regulatory Commission, Working Rules for the Review Committee for the Merger, Acquisition and Re-organisation of Listed Companies (2011 Revision) 中国证券监督管理委员会上市公司并购重组审核委员会工作规程 (2011年修订)