To capitalize on its accelerating growth in the emerging markets, HJ Heinz Company (HNZ: 44.89 -0.17 -0.38%) recently signed an agreement to acquire Foodstar, a leading manufacturer of soy sauces and fermented bean curd in China, from Transpac Industrial Holdings Ltd., a private equity holding company, and various Transpac Funds.
On closing of the deal, Heinz will pay $165 million in cash with the potential for further payment in 2014 depending on the performance of the Chinese firm.
The acquisition will facilitate Heinz to enter China’s rapidly growing soy sauce retail market, worth approximately $2 billion and growing at an annual rate of 7% to 8%. The deal would give the U.S. ketchup maker a strong foothold in China, boosting its regional sales to $300 million a year.
Pittsburgh-based, Heinz currently generates 15% of total organic sales from the emerging markets. The recent deal will help the company accomplish 25% of total sales by 2016. Moreover, the company’s established marketing, sales and distribution channels in China will provide a strong platform for the acquired business.
Based in Guangzhou, Foodstar has 2,500 employees in China and four manufacturing sites. A fifth manufacturing unit is being constructed in Shanghai. Foodstar’s Master Weijixian light premium soy sauce is growing at a much higher rate compared with the total soy sauce category. Heinz also manufactures ABC, a leading brand of soy sauces in Indonesia, which is another key emerging market for the company. It also markets soy sauces such as Amoy in other markets around the world.
Heinz’s fourth-quarter 2010 sales result benefited from the emerging market businesses with India, Indonesia, Russia, Latin America and the Middle East performing stupendously. The sauce maker increased marketing and innovation to develop its brand equity and drive volume growth to offset commodity inflation. On a constant currency basis, Heinz expects annual sales growth of 3% - 4% for fiscal 2011.
Acquisition and divestures remains the long-term growth strategy for the company. Heinz continues to improve profitability, reflecting productivity improvement initiatives. In addition, the company is still rewarding shareholders with regular increases in dividend and share buybacks. Heinz maintains a robust innovation pipeline and continues to rebuild a strong portfolio of brands.