Chinese company takes big mouthful of Weetabix

China's cereal market has been growing as more people gain an appetite for healthy packaged and convenience food.

According to the research company Euromonitor International Ltd, sales in China's breakfast cereal market reached $191 million in 2011 following double-digit increases over several years. This year, it is expected to increase by 12.5 percent.

The Weetabix deal caps two years of overseas expansion by the company with mixed results.

In October 2010, Bright Dairy, Bright Food's subsidiary, spent 382 million yuan ($61 million) for a 51 percent share of the New Zealand milk powder producer Synlait Milk Ltd. In August last year, Bright Dairy bought a 75 percent stake in the Australian company Manassen Foods.

Bright Food is one of the largest Chinese conglomerates in the food industry, with operations throughout the entire food industrial chain, including in agriculture, food processing and brand agency service. In 2011, Bright Food had revenues of $12.2 billion.

According to Investment and Forecast Report on the China Food Industry 2012-16 by China Investment Consulting, most of China's food industry giants have established an international development strategy, and the number of overseas mergers will increase.

Other companies such as China National Cereals Oils and Foodstuffs, or COFCO, are also targeting foreign food brands.

Last year, COFCO completed a deal with Mackay Sugar that will give it a controlling stake in Tully Sugar, one of Australia's largest sugar mills. The total value of the acquisition came to 938 million yuan.

The deal is expected to lower the cost of China's sugar imports, which have been growing dramatically in recent years.

Insiders believe that Chinese food companies can obtain resources upstream in the industry chain through acquisition of foreign companies.

And, in turn, advanced foreign technology and international business experience can help Chinese companies win the trust of international markets and domestic consumers.

However, there's no recipe for success and food mergers have proved difficult. Before Weetabix, Bright Food made a series of forays into the overseas brands market.

Plans to buy British snacks maker United Biscuits from Blackstone Group and PAI Partners fell apart at the end of 2010. Also the same year, Bright Food turned its interest to US nutritional supplement retailer GNC Holdings, but in vain.

Bright Foods also lost a bid in 2011 to General Mills to buy 50 percent of French yogurt maker Yoplait.

"Sometimes, we discover risk factors when talking with foreign companies. If we find the risk cannot be controlled, we give up," Wang says.

Financing is one of main difficulties Chinese food companies face in overseas M&A bids.

Bright Food's acquisition of Weetabix owes much to its financing strategy, when it borrowed from both Chinese and foreign banks. It adopted a "club financing" approach, giving equal participation status to each bank, which significantly reduced lending rates.