CHINA: Hershey to buy 80% of Shanghai Golden Monkey

By Dean Best | 19 December 2013

Hershey said deal "win for both companies"

Hershey said deal "win for both companies"

Hershey has struck a deal to buy 80% of Chinese confectioner Shanghai Golden Monkey Food Joint Stock Co.

The US candy giant, which has identified China as one of its key international markets, said the agreement was subject to local regulatory approval and the backing of the privately-owned firm's shareholders. However, Hershey expects the deal to close in the second quarter of next year. Financial details were not disclosed.

Shanghai Golden Monkey, or SGM, manufactures Golden Monkey candy, chocolates, protein-based products and snack foods. Its net sales "have been growing double digits", Hershey said. The company is expected to post net sales of US$225m for 2013.

Hershey president and CEO John Bilbrey claimed the transaction was "a win for noth companies".

He said: "The strength of SGM's confectionery portfolio and overall distribution capabilities, especially within the traditional trade, is an opportunity for us to leverage scale to make the iconic brands of Hershey and SGM even more powerful. Additionally, SGM's focus on protein-based products and snacking is on-trend with Hershey’s consumer-centric marketplace insights."

Around 75% of SGM's net sales are within the non-chocolate and chocolate candy segments. The remainder is concentrated in what Hershey called the "fast-growing protein-based bean products and other snack categories".

SGM manufactures products in five cities and has more than 130 sales offices in China.

Zhao Qisan, SGM's founder, chairman and general manager, said: "In less than 25 years, SGM products have become national, well-known, trusted brands in China. We look forward to working with Hershey and leveraging the resources that both of us have to offer to the great benefit of Chinese consumers who will have even more choices for high-quality products after this transaction."

The SGM founder will stay on with the business, reporting into Bert Alfonso, the head of Hershey's international operations. He said: "Shanghai Golden Monkey is the type of business we’ve been focused on for potential M&A. It fits Hershey's acquisition criteria: it is located in our primary international market, China; it is a pure play confectionery and snacks company; and it has distribution into channels where Hershey products have yet to penetrate."

Hershey, which initially struggled in China when it first entered the market in the 1990s, has stepped up its investment in the country, launching a range of its US brands. This year, Hershey opened an innovation centre in Shanghai. It also launched its first foreign brand in China, Lancaster milk candies, which it plans to introduce - with a different recipe - into the US.

Show the press release
December 19, 2013 01:00 AM Eastern Standard Time

HERSHEY, Pa.--(BUSINESS WIRE)--The Hershey Company (NYSE: HSY), the largest producer of quality chocolate in North America and a global leader in chocolate, sweets and refreshments, announced that its wholly-owned subsidiary, Hershey Netherlands B.V., has signed an agreement to acquire 80 percent of the iconic Shanghai Golden Monkey Food Joint Stock Co., Ltd. (SGM), a privately held confectionery company based in Shanghai, China. Completion of the agreement is expected to occur in the second quarter of 2014 and is subject to China regulatory and SGM shareholder approval.

Hershey has increased its investment in China over the past several years and is one of the fastest growing confection companies in China. With this transaction, Hershey intends to build on the success of SGM’s iconic brands, diverse product portfolio, in-country manufacturing and growing sales force to accelerate its growth in China, enhance its ability to serve Chinese consumers, and provide increased opportunities for employees in the country. At the same time, SGM will benefit from the scale and scope of Hershey to enable the sustainable, long-term development of SGM’s trusted brands.

Today’s announcement builds on Hershey’s continuing commitment to the China market by providing world-class quality products to Chinese consumers. In May, Hershey announced the opening of its new Asia Innovation Center, located at the Jinqiao Research Park in the Pudong District of Shanghai. This is a fundamental step toward accelerating the company’s growth and enables its global capabilities to quickly develop and launch new products customized to the tastes of consumers in China and across the Asia region.

SGM manufactures, markets and distributes the well-known and award winning Golden Monkey branded products. The SGM portfolio, which also includes Golden Monkey candy, chocolates, protein-based products and snack foods, is widely marketed across China in many cities and rural areas. Approximately 75 percent of SGM net sales are within the non-chocolate and chocolate candy segments. The remainder of SGM net sales is concentrated in the fast growing protein-based bean products and other snack categories. SGM manufactures products in five cities and has more than 130 sales offices, approximately 1,700 sales representatives and about 2,000 distributors covering all regions and trade channels in China. SGM’s net sales have been growing double digits, on a percentage basis, and the company is expected to generate net sales of more than $225 million in 2013.

“The agreement between Hershey and Shanghai Golden Monkey is a win for both companies,” said John P. Bilbrey, President and Chief Executive Officer of The Hershey Company. “The strength of SGM’s confectionery portfolio and overall distribution capabilities, especially within the traditional trade, is an opportunity for us to leverage scale to make the iconic brands of Hershey and SGM even more powerful. Additionally, SGM’s focus on protein-based products and snacking is on-trend with Hershey’s consumer-centric marketplace insights.”

Mr. Zhao Qisan, Founder, Chairman and General Manager of Shanghai Golden Monkey, said, “In less than 25 years, SGM products have become national, well-known, trusted brands in China. Hershey and SGM have similar cultures and strategies related to brand building and selling capabilities and we’re pleased that a company of Hershey’s stature sees the potential in our great company. We look forward to working with Hershey and leveraging the resources that both of us have to offer to the great benefit of Chinese consumers who will have even more choices for high-quality products after this transaction.”

“Shanghai Golden Monkey is the type of business we’ve been focused on for potential M&A,” said Humberto P. Alfonso, President, Hershey International. “It fits Hershey’s acquisition criteria: it is located in our primary international market, China; it is a pure play confectionery and snacks company; and it has distribution into channels where Hershey products have yet to penetrate. Additionally, the company has a strong history of innovation and product quality as evidenced by the outstanding reputation of its core brand, Golden Monkey, which has been nationally recognized as one of China’s most iconic brands.”

Subject to the transaction’s approval, SGM will operate as a standalone business reporting to Alfonso. Many of SGM’s talented senior management team, including Founder, Chairman and General Manager Mr. Zhao Qisan, have agreed to continue in their current roles alongside a few Hershey appointed executives. Hershey will make a cash payment to the seller at the time of closing. Hershey will release additional information about the acquisition in its Form 8-K filing with the Securities and Exchange Commission. The acquisition is not expected to affect Hershey’s previously announced adjusted earnings per share-diluted outlook for 2013 and 2014 provided on October 24, 2013. Excluding integration and transition costs, Hershey expects the acquisition to be slightly accretive on an adjusted basis in 2014.

Original source: Hershey

Sectors: Confectionery, Emerging markets, Mergers & acquisitions

Companies: Hershey

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