Friday, July 08, 2011

Can Nestle succeed where Coke failed? - Shaun Rein


Nestle's anticipated mega deal brings back the US$ 2.4 bn deal by Coke, rejected in 2009 by the Ministry of Commerce for fears the new company would dominate the market. While Nestle's deal is huge, it has not Coke's problems, tells Shaun Rein in Fortune.

Fortune:
Nestlé, the world's biggest food company known for brands such as Haagen-Dazs and Nescafe, is one of many big Western companies that have been looking to increase sales in emerging markets amid slower growth in the U.S. and Europe. The company's interest in Hsu Fu Chi, which is worth around $2.6 billion, could very well go in any direction. And admittedly, large-scale takeovers are complex and rarely easy to pull off.

But it makes little sense for skeptics to bring the memory of Coke's failed $2.4 billion bid into the picture, says Shaun Rein, managing director of China Market Research Group. Whatever issues killed the Coke deal likely won't happen with Nestlé's bid to buy China's biggest confectioner.

For one, Rein notes, there likely won't be a monopoly at issue because Hsu Fu Chi's dominance in China's confection market is not as big as Huiyan's control of the fruit juice market. When Coke pursued Huiyuan, the Chinese juice maker controlled about 42% of the country's pure juice market. By contrast, Hsu Fu Chi commands about a 5.5% share of China's confectionary market. That's still a sizable chunk given that the market is very fragmented, but local and foreign players have been doing well.

"I don't see it getting the same scrutiny and raising the same red flags," Rein says about Nestlé's interest in Hsu Fu Chi.
More in Fortune

Shaun Rein is a speaker at the China Speakers Bureau. Do you need him at your meeting or conference? Do get in touch.
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