Sept. 22 – The Switzerland-based food company Nestlé’s bid for a controlling stake in the China-based food company Yinlu has received the Chinese government’s approval after an anti-monopoly review that lasted several months. Nestlé hopes the new deal will help diversify its product line in China and increase the food giant’s presence in the world’s most important growth market.
Nestlé first announced the signing of a partnership agreement taking a 60 percent-stake in Yinlu back in April. Yinlu, a Xiamen-based private food company, is well known for its ready-to-drink peanut milk and ready-to-eat canned rice porridge.
The acquisition price of the controlling right in Yinlu was not revealed by Nestlé, but the Financial Times estimates the stake value may range between US$600 million and US$1 billion.
While China has used its “Anti-monopoly Law” established three years ago to shoot down quite a few foreign companies’ bids to acquire or merge with Chinese companies, it was fortunate that Nestlé passed the anti-monopoly review and pulled the deal off. Shen Danyang, spokesman of the Chinese Ministry of Commerce (MoC), said the MoC found the takeover will not reduce competition after its assessment of any potential impact on China’s food and beverage industry.
As a well-recognized brand name in China, Yinlu recorded its 2010 sales of US$830 million. Before the takeover, the company was already the entrusted local processor of Nescafé – Nestlé’s instant coffee products.
Nestlé entered the Chinese market over 20 years ago and has seen rapid expansion ever since. Now the company boasts 23 factories as well as two research and development centers across China, with a total of 14,000 employees. As one of its most principal and fastest growing markets, the Greater China Region brought Nestlé sales revenue of US$3.1 billion last year, an 11 percent increase from a year earlier.
Chen Qingyuan, Yinlu’s chairman of the board, believes that the two companies’ partnership will promote the image of both brands and expand their market share nationwide, especially in the central and western parts of China.
Nestlé’s other announced takeover deal – the proposed 60 percent share acquisition of the Chinese candy company Hus Fu Chi International – is still under the MoC’s anti-monopoly review. If approved, the potential US$1.6 billion takeover would become the biggest-ever acquisition in China by a foreign multinational.
Mergers and acquisitions (M&As) are gaining momentum and growing into one of the major forms of foreign investment into China, but the country’s legal environment is becoming more rigid for M&As in the mean time. The issuance of the “Anti-monopoly Law” in 2008, together with the recently required security checks on M&A deals, has considerably lifted the market threshold for many foreign investors. A famous example where foreign companies got hit by the tightening regulatory framework would be Coca Cola’s failure to acquire the local Chinese juice maker Huiyuan back in 2008. The proposed US$2.4 billion-takeover was rejected by the MoC, which believed the potential deal would result in a negative impact on market competition.
Dezan Shira & Associates is a boutique professional services firm providing foreign direct investment business advisory, tax, accounting, payroll and due diligence services for multinational clients in China. In particular, the firm specializes in all matters relating to mergers and acquisitions in the country. For relevant advice, please email firstname.lastname@example.org, visit www.dezshira.com, or download the firm’s brochure here.
Reevaluating China Joint Ventures and M&As
In the Sept. 2011 issue of China Briefing magazine, we take a fresh look at joint ventures and M&As in China – the current market circumstances, the motivations and challenges faced – and provide a few practical insights into key issues such as forming a joint venture contract and finding an M&A partner.
Mergers and Acquisitions in China (Second Edition)
This guide is a practical overview for the international business to understand the rules, regulations and management issues regarding mergers and acquisitions in China. It will help you to understand the implications of what can initially appear be a complicated and contradictory subject as well as points you at the structures you should use and some of the common pitfalls you may encounter.