Nestle SA, the world's biggest food and drink company, took another big step into the Chinese market Monday with the announcement that it is to buy a majority stake in candy maker Hsu Fu Chi for 2.1 billion Singapore dollars ($1.7 billion; $1.4 billion Swiss francs).
The Swiss manufacturer of Nescafe coffee, KitKat bars and Dreyer's ice cream, said it will acquire 60 percent of shares in Singapore-listed Hsu Fu Chi, which had sales of almost $800 million last year.
The Hsu family will retain the remaining 40 percent stake, with current CEO and chairman Hsu Chen continuing in those roles.
Investors reacted cautiously to the news, with Nestle shares little changed at 52.60 francs ($62.83) on the Zurich exchange by late morning.
Analysts at Zuercher Kantonalbank said the price for Hsu Fu Chi was high, but noted Nestle's strategic ambitions in China — one of the emerging economies where the Vevey, Switzerland-based company sees the strongest chances of future growth.
"This proposed partnership will greatly reinforce our presence in China," Nestle CEO Paul Bulcke said in a statement. "It also demonstrates our long-term commitment to China and enhances our ability to grow our portfolio of international and local brands in this dynamic market."
In April, Nestle bought a controlling stake in Yinlu Foods Group, a Chinese producer of ready-to-drink peanut milk and canned rice porridge, for an undisclosed amount.
Nestle is particularly eager to exploit Hsu Fu Chi's distribution network in China. The confectionery company, founded in 1992 by four Taiwanese brothers, operates four large-scale factories in China and employs 16,000 people.
Hsu Fu Chi makes sweets, cereal snacks, packaged cakes and sachima, a traditional Chinese pastry made of flour, butter and rock sugar.
Nestle entered the Chinese market over twenty years ago and last year had sales of 2.8 billion francs in the China region. Its biggest sellers in China — where it operates 23 factories and employs 14,000 people — include Nescafe, Nan and Maggi as well as domestic brands such as Totole, Haoji and Dashan.
Worldwide Nestle sales reached 109.7 billion francs last year, up from 107.6 billion in 2009.
The takeover of Hsu Fu Chi is subject to regulatory approval in China, Nestle said.
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