Blackstone and PAI Partners may have to sit tight on their United Biscuits investment

Blackstone and PAI Partners may have to sit tight on their United Biscuits investment

Has Bright Food, the Chinese food group, decided not to p-p-p-p-pick up Penguin biscuit owner United Biscuits?

According to the Wall Street Journal, talks between Bright Food and United Biscuits' private-equity owners over a possible US$3.2bn are nearing collapse.

Last month, it emerged that Bright Food was in exclusive talks with private-equity firms Blackstone and PAI Partners to buy United Biscuits, which has a biscuits and snacks portfolio that includes the McVitie's and McCoy's brands.

The news took the industry by surprise. Food-industry giants from Kraft Foods and Campbell Soup Co. to PepsiCo and Premier Foods plc had been named as potential suitors for part or all of United Biscuits. The emergence of Bright Food was seen as a further sign that the growth of emerging markets like China and India had led to the development of powerful domestic businesses - some of which were beginning to flex their muscles overseas.

However, it seems that Bright Food's interest in United Biscuits has waned. "Apparently the talks are dead. I'm not sure what the options [for United Biscuits' owners] are now," one financial source looking closely at the situation told just-food today (27 October).

So where does this leave United Biscuits and its owners? Blackstone and PAI bought the UK firm in 2006 and four years is a typical time-frame for a private-equity investment. Indeed, PAI is also selling its stake in French yoghurt maker Yoplait, an investment it has held for eight years, a long time by private-equity standards.

However, the apparent withdrawal of Bright Food's interest might mean that United Biscuits' owners have to sit on their investment for a bit longer. Many of the names mentioned as possible buyers of United Biscuits face obstacles or challenges of some kind that could prevent them tabling a bid for the company.

Kraft is busy digesting its GBP11.5bn takeover of Cadbury while PepsiCo, the owner of Walkers crisps, could face competition concerns in the UK if it seeks to add brands like McCoy's, Skips and Hula Hoops to its portfolio. Premier, meanwhile, is not in a position to buy a business (certainly not one with the price tag put on United Biscuits) and is facing investor pressure to sell off brands to strengthen its balance sheet.

Nevertheless, US soup giant Campbell could be a possible buyer. In August, reports in the UK suggested Campbell was considering tabling an offer for United Biscuits and had engaged banking advisers to study whether to make a bid. The company declined to comment at the time but a Financial Times report this week cited bankers who claimed the US firm was showing "a greater appetite for larger acquisitions".

One potential obstacle is the Dorrance family, which holds a controlling stake in Campbell and may not want the company to make such a substantial acquisition. The soup maker's recent forays into the M&A arena have been on a smaller scale - its 2009 purchase of US bread maker Ecce Panis a case in point.

However, Campbell is set to see a change in leadership and Denise Morrison, who is lined up to replace Doug Conant as next July but has already been made COO and been given a seat on the company's board, may feel the need for a major deal to boost the company's top line, which has stagnated in recent years.

What is certain about the future of United Biscuits is that the outlook is uncertain. With Bright Food apparently deciding to walk away from the table, United Biscuits' private-equity owners may have to sit tight. With brands like McVitie's and McCoy's, United Biscuits has powerful brands bringing in steady returns. It is clear that that is no longer enough for Blackstone and PAI but who else will want to take a bite of the business?