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Chinese Candy Maker Hsu Fu Chi Confirms Acquisition Talks With Nestle - Update

7/5/2011 12:25 AM ET

Responding to media speculation, Chinese snack and candy maker Hsu Fu Chi International Ltd. or HFCI confirmed on Monday that it has engaged in preliminary talks with Swiss food and nutrition products giant Nestlé SA (NSRGY.PK,NSTR.L) for a potential deal.

Further, the company advised its shareholders to refrain from taking any action in respect of their shares in the company that may be prejudicial to their interests. The company also requested a voluntary trading suspension of its shares on the Singapore stock exchange on Monday.

Media reports over the weekend had said that Nestlé is in talks to buy Singapore-listed HFCI, which has a market value of about $2.6 billion.

An acquisition of HFCI would enable Nestle to boost its sales and expand its presence in emerging markets amid sluggish sales at home. Nestle said in April that its first-quarter sales fell 1.2 percent to 20.3 billion Swiss francs, reflecting the impact of a stronger domestic currency. However, the company noted that it achieved double-digit growth in emerging markets, boasting 12 percent organic growth, compared to a modest 3 percent growth in developed markets.

Nestle has said it is targeting revenues from emerging markets to comprise 45 percent of the group's total revenue by 2020, up from the current 38 percent. In addition, the company has more than 16 billion francs of cash as at the end of 2010 after it sold a majority stake in eye care products manufacturer Alcon Inc. to Novartis AG (NVS) in August. The strong Swiss franc, which has risen to record highs against the euro and the dollar, will make the company's acquisitions abroad cheaper.

Guangdong-based HFCI was founded in 1992 by the four Hsu brothers from Taiwan. The company has 45 large-scale production plants and can make more than 700 different types of confectionery products. It offers its products through retail points, hypermarkets and supermarkets.

HFCI, which sells candies, cakes and the Chinese pastry sachima, reported a 31 increase in profit for fiscal year 2010 to 602 million yuan or $93 million, on 14 increase in revenues to 4.31 billion yuan.

Nestlé, which has a presence in China for over twenty years, currently operates 23 factories as well as two R&D centers and employs 14,000 people.

In mid-April, Nestle said it acquired a 60 percent stake in Chinese food firm Yinlu Foods Group, without disclosing other details of the transaction, including the acquisition price. Both the companies were already partners, with Yinlu being a co-manufacturer for ready-to-drink Nescafé coffee in China. Family-owned Yinlu markets ready-to-drink peanut milk and ready-to-eat canned rice porridge in China.

Rising income and higher consumer spending on food in China has prompted other global companies also to focus on China's food and drinks sector. British beverages company Diageo Plc (DEO, DGE.L) announced a deal last week to acquire control of Chinese liquor brand Shui Jing Fang, after waiting for 16 months to obtain regulatory approval. In 2009, beverages giant Coca-Cola Co. (KO) made a bid to acquire Chinese juice maker Huiyuan, but the deal was blocked by Chinese authorities on regulatory grounds.

NSRGY.PK closed Friday's trading at $62.23, down $0.15 or 0.24 percent on a volume of 0.44 million shares.

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by RTT Staff Writer

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