Nestle, the world's largest food company, is paying a hefty $1.7 billion for a 60 per cent stake in candy maker Hsu Fu Chi International to move deeper into fast-growing markets in China.
Nestle's biggest deal in China so far will take it closer to its target of 45 per cent of sales from emerging markets in about 10 years, and analysts said on Monday securing growth opportunities in China was worth a relatively high price.
'It is certainly not cheap but that is the price you have to pay to get access to this high-growth market,' Vontobel analyst Jean-Philippe Bertschy said.
'The fact that Hsu Chen will continue to lead the company is also very positive because he must be very well linked and have a well-established distribution network,' he said.
Kepler Capital Markets analyst Jon Cox said: 'The deal makes strategic sense as, inevitably, China will become the biggest market for confectionery in the future. It looks a bit expensive at first glance at 3.5 times sales. But you are paying for the future growth prospect.'
The Vevey-based maker of KitKat chocolate bars and Nescafe coffee strengthened its dairy business in China earlier this year when taking a 60 per cent stake in Yinlu Foods Group for an undisclosed sum.
'Together with Yinlu Foods and Hsu Fu chi, Nestle will increase its Chinese business from around 2.8 billion Swiss francs ($3.35 billion) in 2010 to 4.2 billion francs,' Helvea analyst Andreas von Arx said, adding China could become Nestle's fifth-biggest market.
Nestle shares were down 0.3 per cent at 1000 GMT, in line with the European food and beverage sector.
Source : New Age
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