The offer, which values Hsu Fu Chi at S$3.46 billion ($2.8 billion), comes at a time when a series of accounting scandals at foreign-listed Chinese companies has triggered a sell-off in China-based stocks and is prompting owners to consider mergers or partnerships.
The deal will still require approval from China's commerce ministry, authorities from Cayman Islands, where the company is incorporated, as well as shareholders, Hsu Fu Chi spokeswoman Christine Sun said from Dongguan in Guangdong.
"There are some concerns, especially after Coca-Cola's failed bid for Huiyuan, there is a sense that the Chinese government might be trying to protect Chinese brands," Shaun Rein, managing director at China Market Research Group.
"I would think that in this case, it wouldn't be a problem because we estimate the candy company only has about a 5.5 percent of the market, so it's a fairly niche market, and it's also a Taiwanese brand."
The approval process will likely take three to five months, a source close to the deal said.
Investors have worried foreign bids for well-known Chinese brands are off the table ever since Chinese regulators blocked Coca-Cola's $2.4 billion bid in 2009 for the country's top juice maker, Huiyuan Juice
However, British drinks group Diageo won approval last month to increase its stake in Sichuan Shuijingfang , China's fourth largest white spirits group, raising hopes that such deals are possible.
Shares of Hsu Fu Chi, which makes snacks such as peanut candies, pop jellies and sachima rice snacks and competes with companies such as chewing gum maker Wrigley, were up 8.8 percent Monday. The Dongguan-based company's shares were in a trading halt from July 1.
STAKE SALE
The Hsu family, which owns 56.48 percent of the Singapore-listed company, will sell a 16.48 percent stake to Nestle, Hsu Fu Chi said in a statement. The company's Chairman Hsu Chen is Taiwan's 25th richest man on Forbes' list.
But the family, whose four Hsu brothers founded the company in China's southern Guangdong province in 1992, will retain 40 percent in the firm under a joint venture deal, Hsu Fu Chi said.
Nestle will also buy 43.52 percent from shareholders such as Baring Private Equity and asset manager Arisaig and together with the Hsu family will seek to delist the firm.
"The investment is good for Nestle as Hsu Fu Chi has a very good distribution network in China and a decent brand profile, with 6 percent of the market share in China's candy market," said Tan Han Meng, an analyst at DMG & Partners.
Shares of Chinese companies listed in Singapore, known as S-chips, trade at a discount to their Singapore counterparts, which is forcing controlling shareholders to seek exits, he said.
The FT ST China Index , which tracks shares of Chinese companies listed in Singapore, has fallen 11 percent since the start of the year, versus the Straits Times Index's 1.9 percent fall.
"We've seen fair amount of delisting, with shareholders taking the companies private. At this time S-chips as a whole have been affected by the negative sentiment from recent scandals," Tan said.
"For investors looking at the long term, some of them may look deeper into companies that have been unfairly punished to find valuable gems."
GOOD BUY
Analysts said the deal would make sense for Nestle.
"The outlook for China's consumption demand is quite positive," said Dan Bin, a fund manger at Shenzhen-based Eastern Bay Investment Management, which invests in Chinese consumer companies.
"Nestle has a lot of experience in consumer brands and with the deal, they can build on what Hsu Fu Chi already has in the Chinese market."
Nestle has been sitting on a pile of cash since it sold its remaining stake in eyecare group Alcon. In April, it said it planned to take a 60 percent stake in China's Yinlu Foods Group for an undisclosed price.
Nestle has no intention to make major changes to the business or cut jobs, said Hsu Fu Chi, which also competes with Bright Dairy and Shanghai Guan Sheng Yuan Food, maker of the popular White Rabbit candy in China.
Credit Suisse advised Nestle. The directors of the Singapore-listed company plan to appoint an independent financial adviser.
Copyright Reuters, 2011