HONG KONG: Bright Food's latest attempt at deal-making outside China looks unlikely to end its poor track record. After failing to clinch three big deals in Australia, America and UK in the past year, the Shanghai-based food group has offered to pay $2.5 billion for 50 percent of French yoghurt maker Yoplait. It's a brave move that futher risks Bright Food's credibility as a buyer.
The price Bright Food is offering 20 percent higher than what French dairy company Lactalis' proposed last year is certainly mouth-watering.
The question is whether Bright Food can deliver. With $1.8 billion of cash as of June 2010, the group appears to be in a strong position.
It might need to borrow just 30 percent of the overall deal value.
But Chinese banks tend to be less willing to advance acquisition finance when the target assets are overseas. And Bright Food cannot easily borrow more against its domestic assets, since its debt is already about 60 percent of its enterprise value, as of June 2010. Bright Food may have to turn to foreign lenders or the bond market, but that kind of finance costs more.
Then there are political and regulatory hurdles.
French government approval could stand in the way. Opponents of the deal may argue that China's milk scandals would tarnish its brand. Yoplait's other owner, farmers' co-operative Sodiaal, is picky about its new partner.
Even if Bright Food clinches Yoplait, French unions and the pensions system have proven to be difficult for Chinese firms' to handle. TCL, which bought French TV maker Thomson, has battled with unions and suffered years of losses. Of course, Bright Food shouldn't avoid complex deals if they make strategic and financial sense.
It is better to fail at the right deal than succeed with the wrong one.
And it may be that the obstacles to a Yoplait agreement can be overcome.
But if another high-profile attempt fails to come off, then the company will find it much harder to be taken seriously the next time it comes bidding.
Comments
Comments are closed for this article.