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Nestlé SA’s USD$1.7 billion offer for Chinese candy maker Hsu Fu Chi International Ltd. marks an effort by the Swiss foods company to gain on rivals in a fast-growing market by tapping directly into local tastes, according to the Wall Street Journal.

Nestlé said on Monday it plans to buy 60% of Hsu Fu Chi, in a deal that values the Singapore-listed company at 3.5 billion Singapore dollars (USD$2.87 billion). If completed, the acquisition would be one of the largest foreign takeovers of a Chinese company and would give Nestlé control of the second-biggest confectionery company in China, after Mars Inc, the report said.

The bid is part of a broader push by Nestlé, maker of brands such as Nescafe, Kit Kat and Purina, to increase its sales from emerging markets to make up nearly half of the company’s total within a decade from about one-third now.

Annual sales in China’s confectionery market—including chocolate, candies and gum—climbed 63% to more than US$9.2 billion from 2005 to 2010, according to research firm Euromonitor.

Chinese candy consumption per person is still small, and analysts see bigger growth ahead as a wealthier population develops a bigger sweet tooth. China’s 1.34 billion people ate 13.7 million metric tonnes of candy last year, slightly more than half the 26.8 million tonnes eaten by the 310 million people in the U.S.

Foreign candy makers have targeted China for years, but the Hsu Fu Chi deal would move Nestlé into less-familiar territory: Chinese confections.

Hsu Fu Chi’s sweets includes cookies with flavors like sweet onion and cucumber, and ping-pong-ball-size cups of hawthorn- or lychee-flavored gelatin custard slurped up by Chinese children.

The Hsu Fu Chi bid reflects wider efforts by global consumer-goods companies to tailor their product portfolios better to Chinese tastes. Kraft Foods Inc. last year started selling green-tea flavored Oreos. McDonald’s Corp. offers a red-bean ice-cream sundae.

Nestlé in April bought a 60% stake in China’s Yinlu Food Groups Co., which makes peanut-flavored drinks and canned rice porridge. Nestle’s main confectionery product in China is a chocolate-covered wafer bar called Crispy Shark. Sales of Crispy Shark have roughly doubled in the past five years, according to Euromonitor.

Hsu Fu Chi, founded in 1992 and based in southern China’s Guangdong province, had 4.2% of China’s candy market in 2009, the latest year for which Euromonitor has data. That placed it in a tie for second place with Perfetti Van Melle SpA of Italy, maker of Mentos. Hsu Fu Chi reported a profit of 602 million yuan (USD$93.1 million) on revenue of 4.3 billion yuan in the year through June 2010. More at Wall Street Journal


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