Reference no: EM132596273
In the Nestle - Hsu Fu Chi deal, the agreement called for Nestlé initially to buy 43.5% of the firm's shares from independent shareholders (i.e., non-founding family and noninstitutional investors) for 4.35 Singapore dollars (equivalent to $3.56 per share), a 24.7 % premium over the six months ending on July 1, 2011, and a 16.5% stake from the Hsu family. Hsu Fu Chi's current CEO and chairman, Mr. Hsu Chen, would continue to manage the firm.
Nestle paid 3.3 times Hsu Fu Chi's 2010 annual revenue, as compared to the following precedent transactions multiples:
U.S. based Kraft Foods paid 2.4 times revenue for British candy maker, Cadbury, in 2010
U.S. based Mars Candy Company acquired U.S. gum manufacturer Wrigley Corporation for 4.2 times revenue in 2008
French food manufacturer purchased Dutch rival, Numico, for 4.5 times sales in 2007
Nestlé justified the multiple of revenue it paid by noting that the investment in Hsu Fu Chi provides an opportunity to become the top player in this high-growth market. In addition, Hsu Fu Chi provides a platform for future acquisitions that could in concept be relatively easily added to its Chinese confectionary operations.
Do you believe that multiples of revenue paid by other food companies is a good means of determining the true value of Hsu Fu Chi? Why? Why not?