Chinese have their Weetabix as Bright Food strikes deal

Beijing A few months ago Wang Zongnan, chairman of Bright Food, the Chinese grocery giant, changed his breakfast habits.

Since the autumn, he has been devouring a bowl of Weetabix every morning. Not because of a new diet regimen, but as part of his preparation for what would be the biggest overseas deal by a Chinese company in the food and drink industry.

Last week, the hard work — and hefty cereal consumption — paid off when his company announced a deal to buy a majority stake in Weetabix, the British cereal maker, from Lion Capital, the buyout firm.

The tie-up is the culmination of a long quest by Bright Food to buy British. Having previously tried, unsuccessfully, to acquire United Biscuits, the group behind Jaffa Cakes and Hula Hoops, the Chinese firm finally succeeded with Weetabix.

The deal means the cereal maker becomes the latest in a long line of domestic manufacturers to fall into overseas hands.

Bright Food insists it wants to help Weetabix, which also makes Alpen and Ready Brek, crack the increasingly important Chinese market.

It won't be straightforward. Having altered his own breakfast ritual, Wang faces the prospect of convincing his 1.3 billion countrymen of the merits of Weetabix and getting them to switch from congee, the porridge-like traditional Chinese dish.

Beneficial

"With the economic development of China, Chinese consumers are changing as well," said Wang, who argues that this evolution extends to diet. "They want [to eat] more healthy food. They know cereal products are beneficial."

The potential is enormous, and Wang knows it. He said Bright Food, which is backed by the Shanghai government, hoped to help develop Weetabix in China, where it already has a small presence, and eventually across Asia.

In return, Wang argues that Bright Food will "learn from Weetabix their ideas, their technology, particularly in producing healthy food" (though what he makes of products such as Weetabix Chocolate is unclear).

He also makes reassuring noises about the future of the Northamptonshire-based company's manufacturing capability, stating that Bright Food "doesn't have any plan to move manufacturing to China". Similarly, he insists that he wants to retain the Weetabix management team, led by Giles Turrell, who has been chief executive since last autumn, having previously led Kimberly-Clark's consumer business in Europe.

Bright Food was alerted to the possibility of buying Weetabix by Rothschild, the investment bank, which has long had a close relationship with both companies (it advised Weetabix on its 2003 sale to Lion Capital). The bank brought the British and Chinese groups together last autumn and helped negotiate the deal, financial details of which remain sketchy.

£1.2b valuation

Bright Food is buying a 60 per cent share in the business, founded in 1932 as the British and African Cereal Company. Lion Capital and the firm's management will control the remaining 40 per cent. The transaction values the group at £1.2 billion (Dh7.1 billion), including debt. According to the most recent publicly available accounts for Latimer Newco 2, the ultimate parent company for Weetabix, net debt stood at £872 million.

The accounts also show that the Weetabix maker generated £423 million of sales for the year to January 2011 and returned a pre-tax loss of £29.5 million. It would have been profitable but for interest payments of £76 million.

In contrast, Bright Food is a behemoth, generating earnings before interest, tax, depreciation and amortisation of $1.2 billion (Dh4.4 billion) from sales of $12.2 billion. While well resourced, it is not clear how Bright Food is financing the Weetabix acquisition. Wang said details would be publicised once the group finalises its financing plan.

Buying control of Weetabix is the highest profile deal yet achieved by Bright Food, but it is not its first overseas buy. The Chinese group has previously bought a 75 per cent stake in Manassen Foods, an Australian importer, and a controlling share in Synlait Milk, a New Zealand dairy producer.

But it is clear Bright Food has been trying to pull off something more ambitious. As well as the two British groups, it has previously been linked with an approach for Yoplait, the French yoghurt maker.

The Weetabix deal will put the Chinese company firmly on the international stage and convince those sceptics who imagined it was always destined to be the bridesmaid after previous failed takeovers.