Paul French says that China’s acquisitiveness is entering a new phase, with deals to take control of major brands west

Make no mistake – the May announcement that China’s state-owned Bright Food Group was buying a 60% stake in British cereal firm Weetabix from the private equity firm Lion Capital was a quantum leap for both China and the west.

For Chinese food corporations, this is the most high-profile overseas deal to date. Bright has in the past bought 75% of the Australian food business Manassen and, in 2010, it bought a majority stake in New Zealand’s Synlait Milk. But the Weetabix deal is a major step up.

The move follows some failed attempts recently to buy larger scale brands – attempts to buy Australian firm CSR’s sugar business and French yoghurt maker Yoplait both failed, as did bids for American vitamins firm GNC and the UK’s United Biscuits. 

Rightly or wrongly the story is big when household names are bought by Chinese companies. While they have been buying stakes and chunks of many western companies it is the iconic brands that get the headlines – MG-Rover to Nanjing Auto being a case in point some years back.

There was a hullaballoo in the UK surrounding the United Biscuits bid. China to gain control of our Jaffa Cakes? It appears to many of the public that well-known brands are being swallowed up by faceless and unknown Chinese entities – much hand wringing and “whatever next?” op-ed columns ensue.

Although Bright is pretty much unknown in the west, in China, particularly in Bright’s stronghold market of Shanghai, it is a household name. “White Rabbit” sweets are China’s equivalent of Polo mints, its milk and yoghurt are national leaders, its ice-cream brands compete with Wall’s and its bottled water brands are best sellers.

There’s a question of course over why Bright, with a welter of successful brands and great market share in China, should be so eager to acquire overseas. Of course it’s natural for a company that has built up some strong cash reserves from its China business to want to expand internationally into areas it is already strong in domestically – sugar, water, dairy.

Attractive brands

Chinese firms are cash-rich in a buoyant economy; western firms are struggling and attractively valued from a currency exchange point of view. Now is the time for China to buy. It’s also the case that western-style breakfast cereal is being rapidly adopted by middle class Chinese.

But, in the UK at least, this is a quantum leap, and here’s why. In the past, Chinese acquisitions have largely been low-key (Chinese money buying Savile Row tailor Gieves & Hawkes for instance, or the 9% stake China’s sovereign wealth fund took in Thames Water in January 2012). Or the Chinese have acquired the brand and kept it active only in the China market (for instance MG-Rover, whose cars are made and sold nearly exclusively in China now).

Weetabix is different – Bright will control the group and be selling Weetabix and other brands such as Crunchy Bran, Alpen and Weetos internationally. This is new, and with this exposure comes risk.

Bright knows that when it bid for GNC in 2011 concerns were raised on internet consumer sites and in the media about how western consumers should react to a Chinese company controlling such a product as vitamin pills. China has had, and continues to have, food scare after food scare – a staggering 2,300 major scares in the past two years.

On the same day as the Weetabix deal was announced, Chinese state media reported that police had detained 54 suspects, shut down 80 “illegal production lines” and seized 77m gelatin capsules used for prescription drugs, all of which were heavily contaminated with chromium, a carcinogen. This was yet another consumer scare, to follow deadly fake infant formula, melamine-tainted milk, toxic plasticiser in food products, ractopamine and clenbuterol in meat, and the rest.

Consumers and the regulators may well have to be vigilant – similarly Bright will have to up its game to ensure its acquisition is not squandered by a dumb food scare.

This trend of Chinese corporations doing headline-grabbing deals to buy western businesses looks set to continue. China’s Wanda entertainment group which operates cinemas in China (under strict censorship) has just taken control of AMC, the second largest cinema chain in North America, and Chinese bank ICBC is getting into the American corporate lending market – and a whole new level of required transparency.

And then there are the rumours that China Guangdong Nuclear Power may buy Britain’s Horizon Nuclear Power and invest £10bn in new atomic plants in Gloucestershire and north Wales.

This kind of inward investment is usually celebrated, but how will China react to a PR problem in the west? What will these acquisitive businesses’ strategies be? We have yet to see.

Paul French has been based in China for more than 20 years and is a partner in the research publisher Access Asia-Mintel.