United Biscuits: Will Chinese consumers take to the Hobnob? Bright Food, a Shanghai conglomerate, is in exclusive talks to buy United Biscuits, the UK maker of the nobbly treat, for £2.5 billion, according to the Financial Times. United has obvious attractions for a Chinese buyer keen to grow its revenues away from home. But even for a company that describes itself as a hungry wolf, digesting this deal may be painful.
United Biscuits has two chief attractions. First, it is available: sellers Blackstone and PAI Partners are looking for an exit after four years. Second, it should come without political fuss. The sale of Cadbury to Kraft last year showed that the UK does not stand in the way of deals for home-grown brands, and United is already in foreign hands. By contrast, France once blocked Pepsi’s bid for yoghurt-maker Danone on grounds of strategic importance.
The price looks indulgent. At the reported £2.5 billion, United Biscuits would be valued at 9.8 times Ebitda for 2010, if it can repeat last year’s 14 per cent growth rate. That compares with 5.6 times for listed rival Premier Foods. The post-tax return on the acquisition would be a meagre five per cent, by a Breakingviews analysis. Nor are cost-cuts going to come easy, after a decade of lean private equity ownership.
Bright Food may not be too worried by a lack of financial logic - or the fact that Chinese consumers may not love United’s peculiarly British snacks. The Shanghai company’s management wants to increase revenue by $1.5 billion each year for the next three years, yet sets itself no firm profit target. United would add an easy $2 billion a year. Even a five per cent return still beats the yield on China’s 30-year treasuries.
Bright Foods wouldn’t be the first to end up with indigestion. Chinese computer maker Lenovo and electronics firm TCL were saddled with years of losses after they acquired IBM’s PC business and parts of Thomson and Alcatel, respectively. Chinese bidders are rarely welcomed overseas, so their keenness to buy available assets, even at high prices, is understandable. But if they want to be respected as smart deal-makers, it looks like time they found a new recipe.
