Flaky? Bright Food's bid for Weetabix is 'very credible'

A history of failed takeovers makes it easy to dismiss Bright Food as all talk, no trousers.

And on the face of it, Bright’s reported £1bn bid to acquire Weetabix from private equity owners Lion Capital, also looks unlikely in terms of a fit: cereal has yet to make an impression in China where people typically eat hot dishes like rice porridge, or even deep-fried shrimp, for breakfast. And this has added to feeling in the City that nothing will come of the talks. “Bright Food is viewed as being a bit of a magpie, looking at everything without ever being really serious,” says a City source.

However another senior City financier who has experience of working with Bright is convinced this is about to change. “M&A in Western markets is still a relatively new proposition for them,” he says. “But they are certainly developing their expertise in how to prosecute this kind of deal.”

Bright has failed to pull off a number of deals. It walked out of talks with both United Biscuits and US vitamin maker GNC in 2010, unsuccessfully tried to buy CSR’s sugar and biofuels unit in the same year and lost out to General Mills in the auction for PAI’s 50% stake in Yoplait last year.

But Bright has had its successes, too. Since the Shanghai Municipal Government merged the city’s food and drink companies to establish the conglomerate in 2006, it has expanded rapidly, and is now the biggest sugar company in China, the third-biggest dairy business in the country and a major force in biscuits.

By 2011, the group had built up total assets worth ¥82bn (£8bn) and achieved sales from its primary business activities of ¥75bn. And in December, Bright finally secured a major foreign acquisition. It sealed an AUD$530m (£340m) deal to buy a 75% stake in Manassen Foods, which sells a number of big imported brands in Australia including McVitie’s, Bel and Jelly Belly.

It is unlikely to stop there, says another City source familiar with the company. Despite previous deals foundering, it is “a very credible candidate” for multi-billion pound acquisitions.

“Bright is not at all flaky - it has substantial financial resources not immediately apparent from the outside, is dedicated and efficient in getting things done, and open and flexible in negotiation,” he says.

Bright was annoyed it had lost out to General Mills in the Yoplait auction last year. It had put in the biggest bid and met all the right politicians down to the lowest level, which is crucial to successful deal-making in France - unlike the UK.

In the end, Bright failed only because the board at Sodiaal - the French dairy co-operative that part-owns Yoplait - preferred to work with General Mills, with which it had an established 30-year licensing relationship in the US.

After that failure, those who know Bright well are not surprised it is back on the acquisition trail. And Weetabix fits its M&A criteria in many ways says the second source. “They love large businesses with big brands, especially orientated around health and wellness.”

Although cereal biscuits are unlikely to be a hit, Weetabix, which also owns Ready Brek, Alpen and Weetos, has cereal bars, and hot cereals that could be adapted for China, especially if packaged to promote their functional benefits.

Owning an international brand like Weetabix would also give Bright the opportunity to learn lessons that could be applied in China. “They will be hungry to understand how a big Western business is run and learn from its brand building,” says China Market Research analyst James Roy.

In addition, acquisitions provide access to growth in foreign markets, adds Roy. “Food safety scandals have made people scared of the ‘made in China’ label. They would have no hope with their own brands, but a brand like Weetabix still has scope for global expansion.”

Growth is important for Bright, which is typical of Chinese companies in being more preoccupied with size than profitability. That’s partly because of the fierce competition between different parts of the Chinese government to grow the businesses under their control, which provides a strong incentive for M&A. In the case of Bright, its Shanghai owners are determined to prove their capitalist credentials and grow faster than Beijing rivals such as China’s biggest dairy company Mengniu.

There is also support more generally from the state for companies to expand overseas, especially when a deal promises to improve the diet of the Chinese population.

With mandarins keen to be involved, it can sometimes slow down negotiations, says the second City source, but management is increasingly being given autonomy to pursue overseas M&A. “The company does need three to six months to warm up and persuade owners and management, but once they are on board, management are given the necessary freedom.”

In previous acquisition attempts overseas, Bright has worked with various advisors, including Rabobank on the Yoplait bid and Rothschild when it sought to buy United Biscuits - a deal which is believed to have floundered not because of the price (rumoured to be £2bn), but due to unease about UB’s UK pension liabilities.

But even if a deal with Weetabix fails to materialise, it is only a matter of time before Bright lands a major acquisition in Europe. And British grocery brands are high on its shopping list, says the first City source. “The large number with international reach and private equity ownership makes them attractive targets.