CONSUMER: Bright Food Gets Indigestion from Weetabix

Bottom line: Bright’s plan to sell Weetabix 4 years after the purchase is mostly due to declining performance at the British cereal maker, with similar sales likely to follow for other poorly planned food purchases by Chinese buyers.

Bright loses appetite for Weetabix

After splashing into the global M&A headlines 4 years ago with its purchase of a well-known British breakfast cereal maker, Shanghai’s Bright Food has decided that Weetabix apparently isn’t its cup of tea. That seems to be the message in the latest headlines, which say that Bright is looking to sell the British company for quite a discount to the price it paid at the time of the ground-breaking deal in 2012.

Of course much has happened since Bright, known in Shanghai for its biscuits and dairy products, first announced the deal. Bright brought Weetabix’s core breakfast cereal products to China not long after the deal was closed, and even talked about making a separate listing for the British company.

Then Bright itself landed at the center of several food safety scandals, and its former president was probed for corruption last year. Last but certainly not least was the shock Brexit vote earlier this year, which may have been one of the last straws for Bright with this purchase that looked like something of a mismatch from the start.

The latest headlines are rather brief, saying only that Bright has hired investment bank Goldman Sachs to sell Weetabix, with an asking price that would value the company at about 1 billion pounds ($1.25 billion). (English article) That would be quite a bit less than the 1.2 billion pound valuation that Weetabix was reportedly worth at the time of the original purchase.

Of course the pound has plunged since the original purchase following Brexit, meaning that Weetabix’s value in other currencies also would have plunged even more. The dollar equivalent of Weetabix’s valuation at the time of the purchase was $1.9 billion, versus the latest $1.25 billion. That means Bright’s 60 percent stake of the company could have dropped by the equivalent of nearly $400 million since the original deal was sealed.

The reports say that a formal sale process will begin next month. They add that Bright is taking its actions after a majority of Weetabix’s unionized workers voted on Monday to strike over new working conditions, which may have been the real last straw.

Fading Appetite

Taking everything into account, this looks like a deal that Bright was increasingly losing its appetite for. Weetabix never made much inroads in China despite Bright’s aggressive efforts to market its breakfast cereals in Shanghai, where people are more open to western tastes. The corruption scandal at home may have uncovered some misdeeds at Bright related to the purchase, though that’s not really clear.

The crash of the pound following Brexit was also probably a tough pill to swallow, since most of Weetabix’s business still comes from Britain and thus suddenly lost a big chunk of its value in terms of Bright’s own currency, the yuan. I suspect the labor unrest was probably the last straw for Bright, which is unaccustomed to such actions from workers in China, where striking is illegal.

This certainly isn’t the first failure of a major foreign M&A by a Chinese firm, though it does appear to be one of the biggest in the food sector. So the bigger question is whether this might be the beginning of a wave of similar sales by Chinese firms who have gobbled up quite a few major foreign food makers over the last few years.

My answer to that question would be “maybe”, even though most other deals made better sense than the Weetabix purchase. Many of those were in the dairy sector that enjoys far healthier demand in China, including Bright’s own purchase of a majority of Israeli milk producer Tnuva early last year.

But even here, I should point out a recent Israeli media report says Tnuva has lost 40 percent of its value since the Bright purchase, due to falling sales and weak prospects. (English article) That kind of rapid decline seems a bit steep, but underscores the fact that many of these food companies acquired by Chinese buyers were having difficulties at the time of their acquisition.

In most cases the Chinese buyers were betting on reviving these struggling companies by bringing their products to China. Bright clearly couldn’t do that with Weetabix cereals, and it’s quite possible that others that fail to make similar revivals of their overseas food purchases might ultimately find themselves with cases of M&A indigestion.

 

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