Nestle to Weigh $1 Billion Sale of Local Chinese Brands
A pedestrian passes a Nestle SA logo at the Nescafe factory, operated by Nestle SA, in Tutbury, U.K. (Photographer: Simon Dawson/Bloomberg)

Nestle to Weigh $1 Billion Sale of Local Chinese Brands

(Bloomberg) -- Nestle SA is weighing options including a sale for two ailing Chinese units after years of attempting to turn them around, people familiar with the matter said.

The food giant has been reviewing its ownership of Hsu Fu Chi, a local confectionery brand, and Yinlu, known for its ready-made Chinese porridge, according to the people. It is seeking more than $1 billion for its controlling stakes in the two companies, the people said, asking not to be identified because the information is private.

Nestle acquired both companies in 2011 as it sought to tap burgeoning demand in China, only to find itself confronted with sluggish growth a few years later. Since becoming chief executive officer in 2017, Mark Schneider has been weeding out the Swiss company’s portfolio, jettisoning assets such as U.S. chocolate brands, a dermatology business and a life insurance unit for about $15 billion total.

Nestle, which makes Nespresso coffee and Gerber baby food, has made almost two dozen divestments under Schneider. It could opt to sell only part of its stakes in one or both of the Chinese units, according to one of the people.

Peanut Milk, Chocolate

No final decisions have been made, and there’s no certainty the deliberations will lead to a transaction, the people said. A spokesman for Nestle declined to comment. Mergermarket reported earlier that Nestle was conducting a strategic review of the Yinlu business, citing unidentified people.

The two labels could fetch around 1.5 billion francs ($1.5 billion), MainFirst analyst Alain Oberhuber said in a note, adding that there’s a “high probability” they’ll be divested next year.

“Both brands suffer fierce competition from local players,” he said.

Nestle shares rose 0.3% early Wednesday in Zurich.

Yinlu has sales of about 1 billion francs, Nestle said earlier this month. About two-thirds of the business is made up of local products like peanut milk and a porridge called congee, whose sales have been “disappointing,” the CEO said at the time. The rest is ready-to-drink coffee, which has been going better.

“We’re working very, very hard to address that situation,” Schneider said on a call with analysts on Oct. 17. He has repeatedly said Nestle will sell businesses that are non-strategic if it’s not possible to fix them.

Hsu Fu Chi, which makes confectionery products and snacks, probably generates annual revenue of some 700 million francs, according to Vontobel analyst Jean-Philippe Bertschy. Nestle has tried to improve the packaging of Hsu Fu Chi chocolates and added nutritious snacks to appeal to more health-conscious millennial consumers.

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