UPDATE 2-Nestle agrees to buy 60 percent of Chinese food firm

Mon Apr 18, 2011 3:57am EDT

* Nestle to take 60 pct stake in Yinlu Foods Group

* Financial details not disclosed

* Analysts say deal may face scrutiny (Adds quotes, background)

By Melanie Lee and Catherine Bosley

ZURICH/SHANGHAI, April 18 (Reuters) - Nestle , the world's biggest food company, agreed to take a 60 percent stake in China's Yinlu Foods Group for an undisclosed price, becoming the latest multinational to target China's fast-growing food and beverage sector.

Family-owned Yinlu had sales of about 750 million Swiss francs ($839.6 million) in 2010, Nestle said in a statement on Monday. Nestle did not disclose financial details of the deal and said it was subject to regulatory approval in China.

Yinlu, from China's southeastern Fujian province, is known for its peanut milk and instant porridge products.

Analysts said the deal is most likely to be approved because Yinlu operates in a niche segment of the market despite being a brand with a large regional presence.

In 2009, China's regulators killed Coca Cola's bid to buy well-known juice maker China Huiyuan Juice Group for $2.4 billion, on monopoly concerns.

Huiyuan's 2010 revenue was smaller than Yinlu's at 3.71 billion yuan ($568 million).

"There is a decent chance the deal with get approved because it is not a complete takeover. But there will still be some regulatory scrutiny because right now the government is wary of foreign companies making too much money here," said Shaun Rein, managing director of China Market Research Group.

Marie Jiang, an analyst at Shanghai-based research firm Pacific Epoch, said Yinlu is a giant regional brand, whereas Huiyuan was more famous because it had a larger presence in first-tier cities.

Big global food conglomerates have spent the last few years researching and coming up with products for the Chinese market. Earlier in the year, Coca Cola said its made-for-China juice brand Minute Maid Pulpy had become a $1 billion brand globally.

The trend is likely to continue as rising incomes spur Chinese consumers to become more selective about the products they use.

Analysts said the deal is beneficial to both Nestle and Yinlu. It provides Nestle a way into a different market segment and lower-tier cities.

The deal gives Yinlu the expertise, backing of a much bigger brand and exposure to upper-tier cities.

Nestle has been operating in China for more than 20 years and employs 14,000 people. ($1 = 6.533 yuan) (Reporting by Catherine Bosley and Melanie Lee; Editing by Ken Wills and Vinu Pilakkott)

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