HONG KONG (Reuters Breakingviews) - China’s global push has gone a bit soggy with Weetabix. Bright Food may sell the British cereal-maker at a disappointing-looking valuation of about 1 billion pounds ($1.2 billion), Reuters says, citing three sources. This foreign foray offers a cautionary tale: buying a business is the easy part, and Western products don’t always suit Chinese tastes.
There may be no deal – a Bright Food spokesperson denies a sale is in the works. But one at the mooted price would be a climb down. Bright Food bought a 60 percent stake in 2012 at a 1.2 billion pound valuation. And while the original purchase was at nearly 10 times EBITDA, a billion pounds now equates to more like 8 times. The whole foray looks even worse given sterling’s weakness.
At the time of the original purchase, this was the biggest foreign food deal out of China. Bright Food, owned by the Shanghai government, seemed to be heeding official calls for the country’s enterprises to “go global” via acquisitions. It has snapped up a string of other foreign businesses, including Israel dairy producer Tnuva and New Zealand’s Silver Fern Farms
But takeover targets bring their own baggage. Weetabix has faced sluggish economic growth and pricing pressures in its traditional Western markets. Its annual report referred to 2015 as “probably the most difficult period in a generation”. It is not obvious the guidance of a Chinese state-owned enterprise would be much help.
Nor did the Chinese go crazy for Weetabix. There had been optimism that the mushy texture of wheat biscuits drenched in milk might tickle mainland palates, because it is somewhat like hot rice porridge, a local breakfast staple. However, the 2015 annual report acknowledged the need to reinvigorate Weetabix’s China operations.
Bright is undeterred. It says mainland sales for Weetabix have actually doubled this year. And it recently insisted that the group’s wider “go-global strategy remains unchanged”. That is despite takeovers pushing leverage to an eye-watering 9.8 times EBITDA, according to Moody’s, which also points out little sign yet of notable profit growth or synergies at acquired businesses. Weetabix may be just one of the Bright Food buys that turns into mush.
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