Nestlé has announced that it plans to commit around $1.7 billion to the acquisition of a 60% share in confectionery manufacturer Hsu Fu Chi. The turnovers of the undertakings involved in the transaction are above the threshold for concentration filing and the deal is subject to anti-monopoly review.

Nestlé plans to purchase a 43.5% stake in Hsu Fu Chi from the two shareholders that are not part of the Hsu family. If these shareholders agree with the stock purchase plan, Nestlé will buy a further 16.5% share from the 56.5% share held by the Hsu family. In 2010, Nestlé’s sales in China rose by 15% – the most rapid rate of growth of all of its sales regions. However, the company still lags far behind rivals such as Kraft General Foods and Unilever. For Nestlé, purchasing a famous quality brand is the best way to catch up.

Pursuant to the Provisions of the State Council on Thresholds for Prior Notification of Concentrations of Undertakings, the undertakings concerned must file a prior notification with the relevant commerce department of the State Council if:

"the combined worldwide turnover of all undertakings concerned in the preceding financial year was more than Rmb10 billion, and the nationwide turnover within China of each of at least two of the undertakings in the preceding financial year was more than Rmb400 million."

A spokesperson for the Ministry of Commerce announced at a press conference that on the basis of the information held by the ministry, the turnover figures of both parties reach the relevant thresholds.

The acquisition could significantly change the composition of the Chinese confectionery market. Nestlé is the fifth biggest manufacturer in China’s domestic confectionery market(See 21st Century Business Herald); Hsu Fu Chi, with a market share of more than 7%, is in second place. If its plan succeeds, Nestlé will become the market leader. The potential impact of the deal makes it sensitive. It is too early to predict whether the ministry will approve the acquisition, with or without conditions.

Documents and materials have been submitted to the ministry and will be officially filed once the ministry is satisfied with the sufficiency of the documents and materials.