Category Archives: China Acquisitions Mergers

Beijing to review Nestle bid for Chinese sweetmaker

Source: AFP

BEIJING — Beijing said Friday (July 15) it will review a plan by Swiss food giant Nestle to buy a Chinese sweetmaker, in what could be one of the biggest foreign takeovers of a Chinese company.

Nestle said Monday it had agreed to buy a 60-percent stake in Singapore-listed Hsu Fu Chi for 1.4 billion francs ($1.7 billion) to boost the group’s footprint in China.

Commerce ministry spokesman Yao Jian told reporters on Friday the government had received an application from Nestle to acquire the sweetmaker.

“Our anti-monopoly bureau is checking whether the documents are complete … before carrying out the following procedures, including accepting the application,” Yao told reporters.

China’s anti-monopoly law requires firms to receive government approval before they can merge if their combined global revenue exceeds 10 billion yuan ($1.55 billion) or if their revenue in China tops two billion yuan.

Authorities also review deals if two or more of the firms have each reported more than 400 million yuan of revenue in China in the previous fiscal year.

In April, Chinese regulators gave US retail giant Wal-Mart the green light to buy the remaining stake of Chinese supermarket chain Trust-Mart, in which it already owned a share, according to Chinese media reports.

But Beijing has also blocked foreign takeover deals.

In 2009, it vetoed a $2.4 billion bid by Coca-Cola to take over beverage maker Huiyuan Juice Group, saying the deal would have led to higher prices and a smaller choice of products.

Hsu Fu Chi’s net profit for the quarter ending March 31 reached 206.6 million yuan, with revenues at 1.5 billion yuan, according to its latest financial statement.

Euromonitor analysts noted that Nestle’s stake in Hsu Fu Chi would make it the second largest confectionery player in China by retail sales.

Nestle to Buy 60% Stake in Hsu Fu Chi for $1.7 Billion

Source: Bloomberg News

Nestle SA (NESN), the world’s largest food company, agreed to buy 60 percent of Hsu Fu Chi International Ltd. (HFCI), a Chinese snack and candy maker, for S$2.07 billion ($1.7 billion) to tap growth in the world’s most populous nation.

Nestle’s cash offer of S$4.35 for each share of Singapore- listed Hsu Fu Chi is 8.8 percent above the stock’s closing price on July 8. The controlling Hsu family will own 40 percent of the confectioner after the acquisition, the companies said today.

The purchase by the Vevey, Switzerland-based company will be its largest in China, where Hsu Fu Chi’s revenue in the last fiscal year grew more than three times faster than Nestle’s worldwide sales. It’s Nestle’s second major purchase in the Asian country after the Swiss company in April agreed to buy 60 percent of Yinlu Foods Group. In addition to Hsu Fu Chi’s cakes and traditional sweets, Chief Executive Officer Paul Bulcke aims to use the company’s distribution system for Nestle brands.

“It’s a good deal,” said Andreas Von Arx, an analyst at Helvea in Zurich who rates Nestle “accumulate.” “Yinlu gave Nestle a good footprint in beverages in China and today’s deal gives them a good footprint in the confectionary business.”

The Dongguan, Guangdong-based company is trading at 26 times earnings, according to Bloomberg data, compared with 34.6 times for rival foodmaker Tingyi (Cayman Islands) Holding Co. and 35.4 times for Want Want China Holdings Ltd., a snack maker and flour supplier.

Nestle in China

“Hsu Fu Chi has an extensive network and quite a large number of point-of-sales in China, that’s definitely what Nestle will be looking for,” said Eugene Ng, a Singapore-based analyst with UOB Kay Hian Pte Ltd. ‘It seems a good deal for Nestle, given the valuation comparison with its major peers.”

Nestle’s Bulcke, 56, has set a goal of getting 45 percent of revenue from developing countries by 2020, compared with about a third now.

The maker of Nescafe instant coffee, After Eight mints and Kit Kat candy bars has 23 factories and 14,000 employees in China, with sales of 2.8 billion Swiss francs ($3.3 billion) in 2010, it said in a statement. Hsu Fu Chi, founded in 1992 by four brothers from Taiwan, has four factories and 16,000 employees in China making cereal-based snacks, packaged cakes and traditional Chinese “sachima” sweets.

Shareholder Agreement

The purchase “enhances our ability to grow our portfolio of international and local brands in this dynamic market,” Bulcke said in the statement.

Hsu Fu Chi Chairman and Chief Executive Officer Hsu Chen, the second oldest of the brothers, is the 25th richest man in Taiwan, according to Forbes magazine. Hsu Chen will continue to lead the company, the statement said.

Hsu Fu Chi’s two largest independent shareholders have agreed to vote for the transaction, according to the statement. Units of the Baring Asia Private Equity Fund hold 16.5 percent of the stock, while Arisaig Partners Holdings owns 9 percent. Hsu Fu Chi shares will be delisted from the Singapore exchange after the acquisition is completed.

Hsu Fu Chi’s profit rose 31 percent to 602.2 million Chinese yuan ($93 million) in fiscal 2010 as sales increased 14 percent to 4.31 billion yuan, according to Bloomberg data.

Sales of Sweets

“With Nestle, we will accelerate the development of the Hsu Fu Chi brand, its production and distribution capabilities and ensure Hsu Fu Chi’s continued growth,” Chairman Hsu Chen said in the statement.

Sales of sweets in China rose 5 percent to 40 billion yuan in 2010, according to researcher Euromonitor International. Hsu Fu Chi led the market with a 6.6 percent share in 2009.

Hsu Fu Chi’s strategy of offering almost 500 products requires it maintain its own distribution network, Stephen Hui, a Singapore-based analyst with Standard Chartered Bank, said in a July 4 report.

“Hsu Fu Chi’s direct distribution network forms a large barrier to entry” for competitors, Hui wrote in the report. “Hsu Fu Chi’s wide product offering also targets a wide audience and could help Nestle penetrate the mass market.”

Nestle had cash and near cash of 8 billion francs and short-term investments worth 8.2 billion at the end of last year after selling its majority stake in Alcon Inc. to Novartis AG. Bulcke said June 8 that the company’s first priority with its cash is investing in existing businesses, though it’s also considering “bolt-on” acquisitions.

Credit Suisse is advising Nestle on the purchase.

Starbucks Plans Coffee Joint Venture With China’s Ai Ni Group

Source: Starbucks

SALT LAKE CITY, July 14, 2011 – As part of its continued efforts to develop China’s Yunnan Province as a high-quality coffee growing region, Starbucks Coffee Company (NASDAQ: SBUX) today announced the signing of a Memorandum of Understanding (MoU) with Ai Ni Group, one of Yunnan Province’s most established coffee operators and agricultural companies. The MoU will pave the way for Starbucks and Ai Ni Group to form a joint-venture company that will purchase and export high-quality arabica Yunnan coffee beans, as well as operate dry mills in the Yunnan Province. Starbucks will have operating control of the joint-venture company.

The MoU signing ceremony was conducted during the inaugural 2011 U.S. & China Trade, Culture & Education Conference. Governor Qin Guangrong, Yunnan Provincial Government and Governor Christine Gregoire, State of Washington, were in attendance, and John Culver, president, Starbucks Coffee International, and Liu Minghui, Founder and Chairman, Ai Ni Group, signed the MoU on behalf of their respective companies.

“Starbucks Yunnan Coffee Project reinforces Starbucks coffee leadership in China, our second home market outside of the United States, and will help fuel our continued growth as we seek to serve customers through the more than 1,500 stores we expect to have in the market by 2015,” said John Culver, president, Starbucks Coffee International. “Starbucks has always been committed to buying and serving the finest-quality coffee to our customers and Yunnan will play an important strategic role in ensuring our long-term supply of premium coffee.”

Conference Chair Governor Christine Gregoire, State of Washington, said, “This is great news for Starbucks and for the state of Washington, home to some of the world’s most innovative and globally-competitive companies, including Starbucks.” She added, “Today’s announcement shows that what Washington state has to offer is in demand around the world.”

This partnership follows closely after Starbucks earlier commitment to collaborate with the Yunnan Academy of Agricultural Science (YAAS) and People’s Government of Pu’er City, Yunnan Province, to help local farmers promote responsible coffee-growing practices and develop high-quality coffee locally. Through the numerous Starbucks Yunnan Coffee Project planned initiatives, including the increased and direct sourcing of Yunnan coffee, the investment in and operation of coffee processing facilities, and establishment of a Starbucks Farmer Support Center, Starbucks aims to develop a complete value-chain in China – from coffee seed to its authentic Starbucks Experience in stores.

“This win-win partnership is an important step forward, as part of our broader joint efforts with the Yunnan Government and the YAAS, to elevate Starbucks C.A.F.E (Coffee and Farmer Equity) Practices across the vast geographies of Yunnan Province; allowing us to make a real impact in the areas of ethical sourcing, environmental stewardship and community involvement,” added Jinlong Wang, president, Starbucks Asia Pacific and lead for Starbucks Yunnan Coffee Project. “Since the introduction of Starbucks South of the Clouds BlendTM in 2009, we have remained committed to bringing the distinctive Yunnan coffee taste to even more of our customers and coffee-lovers around the world.”

“The new joint-venture company will combine Starbucks global best practices and coffee expertise with Ai Ni Group’s established coffee-farming model to create a better future for the coffee farmers and communities in Yunnan,” said Mr. Liu Minghui, Founder and Chairman, Ai Ni Group. “Ai Ni Group is proud to partner with Starbucks in this endeavour as we share a common vision and ambition to establish Yunnan as a globally recognized premier coffee growing region.”

In addition to the joint-venture company with Ai Ni Group, Starbucks also plans to set up its wholly-owned Farmer Support Center in Pu’er, Yunnan Province. The Farmer Support Center will seek to provide agronomy consultation services and support to members of the coffee-farming community across China, in particular, those within the Yunnan Province. As part of the MoU, the Starbucks Farmer Support Center will also provide counsel to the Ai Ni Group on three different aspects, namely, the provision of coffee seeds for Starbucks recommended coffee varietals; agronomy support for Ai Ni Group’s demo coffee farms; and technical assistance on the set-up of its coffee wet mill.

About Ai Ni Group

The Ai Ni Group, established in 1993, currently operates numerous coffee processing facilities and two coffee farms with a total area of almost 500 hectares. In addition to its own harvests, the Group had purchased and processed 6,900 tons of coffee parchment, benefiting almost 4,600 coffee farmer households in Yunnan Province, in 2009/2010. The Group also runs four high-end restaurants in Yunnan Province and manages a cattle business of about 10,000 heads of beef cattle. For more information about the Group’s expansive business operations in China’s Yunnan Province, please visit  http://www.ynaini.cn/

Danone sells water JV stake to Bright Food

Source: Reuters

(Reuters) – French foodmaker Danone has signed an agreement with Bright Food Group to sell its 50 percent stake in a water company to a Bright Food Group unit, Bright Food said on Thursday (July 14).

Danone had a joint venture with Shanghai Maling Aquarius , a unit of Bright Food Group, to operate the Shanghai Aquarius brand in China. Danone will sell its stake in the joint venture to another Bright Food unit, said Pan Jianjun, a Bright Food spokesman. Pan declined to disclose the financial details of the deal.

Danone sold its 23 percent stake in China’s Huiyuan Juice last July for around 200 million euros to focus its water division on natural mineral and spring water-based beverages.

Danone could not be immediately reached for comment.

In 2007, Danone was involved in a high-profile legal tussle with Chinese beverage maker Wahaha Group over what it said was a violation of the two firms’ joint venture agreement. The matter was settled in 2009.

COFCO raises stake in Mengniu

Source: By Yu Hongyan (chinadaily.com.cn)

COFCO Corporation bought another 142 million shares of China Mengniu Diary Co Ltd for around HK$3.59 billion ($461 million), raising its stake in the dairy producer to 28.04 percent, the Shanghai Securities News reported Friday.

COFCO may have bought the shares from Yinniu, Jinniu and a trust fund founded by interests under Concert Party Agreement, including Niu Gensheng, the former chairman and founder of Mengniu, which is China’s largest dairy producer, according to a previous media report.

A Deutsch Bank report also confirmed that, saying the sellers are not institutional investors.

It means that Niu transferred all his shares after he resigned as chairman.

Mengniu said previously that Niu resigned to focus more on charity.

COFCO, together with Hopu Investment Management, bought 20 percent of Mengniu for HK$6.1 billion ($783 million) in 2009, making COFCO the largest shareholder of Mengniu since then, the paper said.

COFCO said previously that it will only act as a strategic investor without involving itself in business management, according to the paper.

Sun Art Delays Debut in Hong Kong on Prospectus Error After $1 Billion IPO

Source: Bloomberg News By Fox Hu

Sun Art Retail Group Ltd., China’s largest hypermarket operator, delayed its trading debut in Hong Kong because of an error in its share-sale prospectus.

The retailer, which raised HK$8.2 billion ($1.1 billion) in an initial public offering this month, plans to list July 27 instead of today as scheduled, according to a statement to the city’s stock exchange today. Historical earnings-per-share figures in the prospectus failed to reflect a stock split that took place before the IPO, it said.

Sun Art, backed by France’s Groupe Auchan SA, dropped to HK$7.60 in over-the-counter gray market trading at 5:15 p.m. in Hong Kong yesterday, from as high as HK$8.28 earlier, according to the website of Phillip Securities Group. An “accident” caused trading to be suspended, according to a statement on the website. Sun Art sold shares at HK$7.20 apiece in the IPO, the top end of a range marketed to investors.

“The uncertainty is still around, so it makes sense that the gray market price dropped,” Nelson Yan, an investment manager at Mayfair Pacific Financial Group in Hong Kong, said yesterday (July 14).

Due Diligence

Ruentex Industries Ltd. (2915) and Ruentex Development Co., part owners of Sun Art, fell in Taipei trading. Ruentex Development dropped as much as 3.8 percent to NT$40.20 before trading at NT$41.2 as of 11:44 a.m. local time while Ruentex Industries Ltd. lost as much as 5.1 percent to NT$64.70 before trading at NT$66.1.

Hong Kong’s markets regulator plans to review how banks underwrite IPOs, after its former head, Martin Wheatley, said due diligence in offerings had at times been “inadequate.” The Securities and Futures Commission said June 8 that it may begin consultation on making sponsors legally liable for statements in their clients’ prospectuses in the third quarter.

Sun Art received orders for more than 40 times the stock available to retail investors, according to a statement from the company yesterday. Net proceeds from the share sale will be about HK$8 billion ($1 billion) the company said yesterday. About half of that will be used to open stores in China, where it has 196 hypermarkets using both the Auchan and RT-Mart brands.

Technical Errors

Citigroup Inc., HSBC Holdings Plc and UBS AG (UBSN) are managing the offering as global coordinators, and BNP Paribas SA, China International Capital Corp., Goldman Sachs Group Inc. and Morgan Stanley are joint bookrunners, according to the prospectus. KPMG was the auditor for the IPO.

Sun Art isn’t the first company this year to get tripped up by a technical error. Dragon Crown Co Holdings Ltd., which started trading on June 10, misprinted an earnings-per-share number in its IPO prospectus, according to a May 31 filing to the Hong Kong stock exchange.

Milan Station Holdings Ltd., which debuted on May 23, misstated a condition for measuring the company’s share capital in its IPO prospectus, a May 18 filing to the stock exchange showed. Goldman Sachs Group Inc. (GS) said in April it would buy back at a premium warrants that were suspended from trading in Hong Kong because of a misprinted settlement formula.

Sun Art last year had a 12 percent market share in China’s hypermarket industry, according to data from London-based researcher Euromonitor International. Wal-Mart Stores Inc. ranked second with 11.2 percent, China Resources Enterprises Co. had 9.8 percent and Carrefour SA 8.1 percent, according to Euromonitor.

Yihaodian teams up with Wal-Mart online

Source: By Gao Yuan (China Daily)

BEIJING – Yihaodian.com was neither the oldest nor the biggest online shopping website in China, nevertheless it won Wal-Mart Stores Inc’s favor this summer and made the US retail giant a shareholder.

According to Yu Gang, the company’s chairman and co-founder, yihaodian.com plans to make the idea of an online supermarket a nationwide phenomenon – at a startling speed.

Currently, the company’s stock-keeping unit (SKU), a figure used to indicate the amount of product for sale in a store, is 100,000, five times larger than a normal large-scale supermarket. The company’s annual sales turnover in 2011 is estimated to reach 3 billion yuan ($464 million), a sum about 10 times larger than a large supermarket.

However, Yihaodian’s annual sales turnover should reach as high as 7 to 10 billion yuan to ensure a profit, said Yu, a 1981 graduate from Wuhan University’s department of space physics.

“The speed of expansion is way too slow if we only rely on ourselves,” he said.

The average prices for the products on sale at yihaodian.com are 3 to 5 percent lower than in a real supermarket. That’s down to the fact the suppliers don’t have to rent booths and can use the efficient storage and delivery system Yihaodian developed, Yu said. The company has a research and development (R&D) team of 120 based in Shanghai, and will build a 400-people R&D center in Wuhan by mid-2012.

“Customer experience is the most important index for an online shopping company,” Yu said. “We want to make the customers feel as comfortable as if they were sitting at home whenever they make a purchase on yihaodian.com.”

According to research into customer loyalty conducted by iResearch in March, 51.2 percent of customers would like to visit yihaodian.com for a second time after their first purchase. This figure was ranked No 3 among all Chinese B2C websites, higher than 360buy.com’s 40.5 percent, amazon.cn’s 38.2 percent and dangdang.com’s 30.7 percent.

In May, Wal-Mart announced that it had reached an agreement to acquire “a minority stake” in Yihaodian. The agreement endorsed Yihaodian to sell Wal-Mart’s self-owned branded products, including Great Value, one of Wal-Mart’s most famous food brands in China. Moreover, Yihaodian can enlarge its SKU by leveraging Wal-Mart’s supplier and logistics resources, Yu said.

“Online sales in China are growing rapidly and are projected to match US online sales in the next few years,” said Eduardo Castro-Wright, vice-chairman of Wal-Mart Stores and chief executive officer of Walmart Global eCommerce and Global Sourcing. He said that by investing in Yihaodian, Mal-Mart could continue to establish a presence in China’s e-commerce market, and could be a “leading” global multichannel retailer.

The company was established in July 2008, when, Yu and Liu Junling, both former senior executives at Dell Inc, decided to open an online shopping site that provided a full range of products.

That was at a time when 360buy.com, currently one of the most prestigious online business-to-customer (B2C) shopping portals in China, was largely a vending site for electronic devices.

As of July 3, Yihaodian’s page views surged by 41.5 percent over the figures for three months ago, and were higher than 360buy.com’s 25.4 percent and taobao.com’s 17.48 percent rises, said the US Web information company Alexa Internet Inc.

Yihaodian.com has about 1,400 employees, according to a company report released in February. Now the number is more than 2000. It plans to increase the number of employees to between 3,000 and 4,000 this year.

The company also summoned “several hundred” direct-selling shops to enhance its offerings in a faster and more efficient way. Yihaodian has no intention of introducing a customer-to-customer type of sales model on its website over fears of poor product quality and monitoring difficulties.

TouchFashion Jewelry Co Ltd, based in Guangzhou, started to sell its wares embedded with Swarovski lead crystals through Yihaodian in May. About 10 percent of the company’s sales come from the platform now, according to Gu Ge, TouchFashion’s founder. He expected that by the end of this year, sales volume through Yihaodian could hit 30 percent.

“The price of our jewelry could be 30 to 50 percent lower than competitors because the online shop could save in the cost of renting booths, as well as sales clerks’ wages,” Gu said, adding that the cost edge generated by online shopping gave his company a bigger say in pricing.

On July 4, Yihaodian’s newly built warehouse and distribution center in Wuhan, the most populous city in Central China, was put into operation. Another equivalent warehouse will be ready in Chengdu, in Southwest Sichuan province, by mid-July. The other two warehouse and distribution centers in Northwest Xi’an and Northeast Shenyang are expected to open by the end of this year.

The new distribution centers will help Yihaodian to explore the inland market, Yu said, adding that his goal was to have more than 1 million different commodities on sale on the website in the next two to three years.

Diageo’s China deal signals rare breakthrough

Source: Reuters By Michael Flaherty and Don Durfee

HONG KONG/BEIJING (Reuters)- For executives and M&A advisers studying Diageo’s  major step toward control of a Chinese white liquor maker last week, a celebratory clink and a toast of “ganbei” is in order.

After all, the approval from a key ministry for Diageo to take control of Sichuan Swellfun, China’s fourth-largest premium white spirits maker by volume, confirms that foreign take-overs of Chinese brands are possible.

Ever since Chinese regulators blocked Coca-Cola’s $2.4 billion bid in 2009 for the country’s top juice maker, Huiyuan Juice, investors have worried such deals were effectively off the table.

It’s a question that’s bound to come up again as Nestle eyes a possible $2.6 billion deal to buy Chinese candy maker Hsu Fu Chi International.

But those who see Diageo’s move as proof that China has swung the doors wide to foreign investors may have consumed too much baijiu, the clear, fiery drink that can have as much as 60 percent alcohol content.

“I don’t think it’s a breakthrough — I’d be very skeptical that this deal is establishing some kind of pattern,” said David Livdahl, a Beijing-based partner with law firm Paul Hastings who works with foreign investors.

Ahead of the deal, Sichuan Swellfun, which owns China’s oldest baijiu distillery, agreed to divest a jewel in its portfolio, the Quanxing liquor brand. That addressed worries that regulators might balk at letting a famous Chinese brand fall into foreign hands.

The deal took nearly two years — an eternity compared with most overseas deals. Added to which, the complicated transaction was only finalized after the British and Chinese leaders became involved.

Sources say Britain’s prime minister was expected to announce the deal on his trip in China in November last year. Instead, the press release had to wait until Chinese Premier Wen Jiabao traveled to the UK last month.

While the decision shows progress when it comes to Beijing’s view of outside money, anti-trust review will remain a major hurdle for foreign acquisitions in China.

A particular worry is the still-untested panel China set up last year to review deals for national security issues.

Livdahl said that mechanism allows regulators a great deal of discretion on which deals they approve.

“The reality is that China has a much finer net to strain out anything it wants with this national economic security review,” he said.

Diageo has jumped over the anti-trust hurdle, and appears to have avoided national security concerns. The next and likely final step is the China Securities Regulatory Commission review, which is expected to take several weeks.

LESSONS LEARNED

When China’s Ministry of Commerce rejected Coke’s attempt to buy Huiyuan in March 2009, it cited the anti-competition term of “concentration.” That rejection came a year after China enacted new anti-trust laws meant to bring regulation in line with international standards.

China was explicitly saying that a combined company would hurt smaller players too much. But public figures at the time showed that Huiyuan controlled 10.3 percent of China’s fruit and vegetable market and Coke 9.7 percent — hardly an overwhelming degree of market share.

What was implicitly stated at the time, according to advisers and lawyers, was that Chinese officials, among other factors including a post-Lehman market plunge, did not want to hand over a national juice brand to a foreign buyer in the end.

Diageo appears to have learned that lesson.

“Because of the spinoff of the Quanxing brand, this deal wasn’t seen as impacting something that’s seen as a national treasure, or a famous Chinese brand,” said Bradley Lui, a partner with Morrison Foerster in Washington D.C. who specializes in antitrust issues.

The divestiture also means Diageo’s market share in the white spirits segment will be much less than Coke’s would have been in the juice segment, easing regulators’ worries about over concentration.

Diageo’s lead adviser was Vermilion Partners, while UBS and Citic Securities also advised on the deal.

Diageo could also argue that the deal is good for China’s stature overseas.

“There was the prospect that with this deal that Diageo would turn this brand into something that’s sold outside of China,” said Lui. “They could make the argument to the Chinese government that this is good exposure for a Chinese product.”

But if the company’s success is merely a product of clever tactics, that still leaves the question of whether China plans to allow more, and bigger, deals to go through.

“China cannot continue to block any and all significant foreign investments,” said Marc Waha, a partner at law firm Norton Rose. “They are trying to show to the outside world that they are respectable and reliable player,” he said.

China’s Bright Food denies Treasury Wine buy talks

Source: Reuters By DavidLin/Melanie Lee

SHANGHAI (Reuters) – China’s Bright Food Group said on Tuesday it was not in discussions to buy any Australian wine assets, denying a media report that it was in internal talks on bidding for Australia’s Treasury Wine Estates Ltd.

“Currently, we have no Australian wine acquisitions in the works,” Pan Jianjun, general manager of the firm’s public relations department, said by telephone.

However, Pan said the Shanghai-based conglomerate could consider acquiring wine assets in Australia, France, Chile and the United States to broaden its brands portfolio, which currently includes labels such as Shikumen and He Jiu.

Bloomberg News reported on Friday that Bright Food was considering making an offer for Treasury Wine Estates.

The report sent the shares of Treasury Wine Estates up 11 percent on Monday. Its shares closed down 2.2 percent on Tuesday.

Treasury Wine, with brands including Penfolds, Rosemount and Beringer, was spun off by Foster’s Group in May to its shareholders after the brewer failed with an expansion into wine that resulted in nearly A$3 billion ($3.2 billion) in write-downs.

Treasury Wine, the world’s second-largest wine company behind Constellation Brands owns vineyards from Hunter Valley near Sydney to Napa Valley in California.

Government-controlled Bright Food has been actively looking for acquisitions overseas to boost its profile and cater to a rapidly growing domestic market.

However, it has been unsuccessful thus far with a string of failed bids that includes CSR’s sugar business and French yoghurt maker Yoplait.

Bright Food, which makes the famous “White Rabbit” candy, was also reportedly in talks to buy U.S. nutritional retailer GNC and Britain’s United Biscuits, but talks fell apart over pricing, terms and uncertainty over regulatory approval.

Pan said Bright Food would continue to seek opportunities overseas that fit its core businesses of dairy, sugar, wine, food industry, retail chains, brand agency services, and agriculture.

The firm has four subsidiaries listed on the Shanghai Stock Exchange: Shanghai Jinfeng Wine Co, Shanghai Haibo Co, Shanghai Maling Aquarius Co and Bright Dairy & Food Co.

Bright Food has said it may make acquisitions through its listed units instead of the group company. ($1 = 0.931 Australian Dollars)

China Approves Diageo Baijiu Bid

Source: Wall Street Journal By Paul Sonne and Laurie Burkitt

LONDON—Liquor giant Diageo PLC said Monday that Chinese regulators have approved its bid to take control of a local Sichuan white-spirit maker, some 16 months after the deal was first announced.

The approval came as U.K. Prime Minister David Cameron met Chinese Premier Wen Jiabao in London for a summit designed to increase business cooperation between Britain and China. The leaders jointly announced Anglo-Chinese business contracts worth £1.4 billion ($2.23 billion).

London-based Diageo, which makes Johnnie Walker whisky and Smirnoff vodka, will become the largest single shareholder in the Chinese baijiu brand Shui Jing Fang, upon completion of a complex transaction designed to give Diageo indirect majority ownership. Shui Jing Fang is a small, high-end brand of the translucent Chinese white spirit taken in shots and known for its fiery taste.

“Growth prospects, like Diageo’s increased investment in China, are an example of business success that we want to see more of in the future,” Mr. Cameron said Monday. Diageo Chief Executive Paul Walsh described the approval as a “vote of confidence” from Chinese authorities.

LVMH Moet Hennessy Louis Vuitton SA and Pernod Ricard SA have also taken stakes in local baijiu makers, amid a race among Europe’s liquor giants to crack the growing market for China’s national spirit.

Diageo’s investment comes as Western consumer-goods companies look to gain a foothold in the growing Chinese market but face hurdles set by government regulations on foreign ownership. In 2009, Chinese authorities rejected a $2.4 billion bid by Coca-Cola Co. to buy all of a major Chinese soft drinks maker, Huiyuan Juice Group Co., citing antitrust concerns. The rejection was seen as a protectionist measure, though Chinese officials denied that.

Baijiu accounts for 32% of China’s alcoholic drinks market, having climbed to 805.8 billion yuan in sales in 2010, up 13% from a year earlier, according to Euromonitor. That makes it about 45 times bigger than the Chinese market for whisky.

Diageo will pay about 140 million yuan ($21.6 million) to increase its stake in Sichuan Chendu Quanxing Group Company Ltd. to 53% from 49%. Quanxing is a holding company that owns 40% of Sichuan Swellfun Co., the listed name for Shui Jing Fang on the Shanghai Stock Exchange.

Once it increases its stake in the holding company, Diageo must by law make an offer for the remainder of Sichuan Swellfun at a minimum of 21.45 yuan a share. If the remaining 60% of Sichuan Swellfun shareholders all accepted the offer, Diageo would pay about 6.3 billion yuan. The mandatory offer, however, isn’t expected to garner full support from shareholders because it’s likely to be priced at a minimum level.

Diageo said Monday that is now seeking approval from the China Securities Regulatory Commission to launch the offer, and it expects to receive a go-head in “due course.”

Chengdu Yingsheng Investment Holding Co., which serves as Diageo’s Chinese partner and owns the remainder of the holding company, said in a statement Monday that it looked forward to working more closely with Diageo to build a world-class baijiu business.

Shui Jing Fang ranked fifth among China’s baijiu brands in 2010, according to a survey by Taiwan-based Yuanta Securities Investment, which measured brands by awareness, revenue and sales volume. A small bottle of the spirit currently sells for about 660 yuan.

Before Diageo announced the deal last year, it agreed that Sichuan Swellfun would spin off Quanxing, a baijiu considered a national heritage brand and therefore off limits to Western owners. That spin off occurred in March of this year, paving the way for Monday’s regulatory approval.

“There’s room to grow and it’s a good opportunity for Diageo,” Charles Yan, an analyst at Yuanta Securities said. Though Shui Jing Fang is relatively unknown compared to baijiu heavyweights like China Kweichow Moutai, Mr. Yan says its rich history—with distilleries that date back 3,000 years—is attractive to Chinese consumers.