China’s Bright Food buys controlling stake in Weetabix from Lion Capital

Bright Food, one of China’s biggest food groups, has agreed a deal to buy a 60% stake in Weetabix, maker of a popular British breakfast cereal, from Lion Capital.

The deal values Weetabix at £1.2 billion ($1.94 billion), including equity and debt, which looks like a decent return for the London-based private equity firm, which still owns 40%. It paid £640 million for Weetabix in 2004 (when it was known as Hicks Muse Tate & Furst).

Based on a 50:50 debt-to-equity ratio for the original buyout, Lion Capital would be getting paid roughly £530 million for an original equity investment of £320 million, while still holding on to a 40% stake now valued at £352 million, plus any dividends it extracted during the past eight years.

The two companies did not reveal details about the amount of debt involved in the transaction so it is difficult to know the actual return. Lion Capital may have used far more debt in the original deal, and may have added more during the life of the investment.

Bright Food, which is based in Shanghai, has failed in a few attempts to buy other foreign businesses during the past couple of years. Deals for United Biscuits in the UK and nutritional supplements maker GNC in the US both fell through, while it missed out on bids for France’s Yoplait yoghurt and CSR sugar in Australia.

Its one success was a 75% stake in Manassen Food, maker of Jelly Belly jelly beans, which it paid roughly $530 million for last year.

With the acquisition of Weetabix, Bright Food has finally got its hands on a substantial overseas business.

“This company has an excellent portfolio of brands, including the famous British cereal brand, Weetabix, and also other category-leading brands such as Alpen and Ready brek,” said Zongnan Wang, the company’s chairman. “With its best-in-class production standards and excellent track record for innovation, the business is poised to achieve strong and sustainable long-term revenue and profit growth.”

The acquisition comes after a period of investment and improvement at Weetabix. The company has a roughly 7% share of the British cereals market and exports to 80 markets worldwide. It is particularly popular in Kenya, where it has a whopping 70% market share.

Bright Food’s investment offers the opportunity to also sell Weetabix to the Chinese, through its more than 3,000 stores on the mainland.

“We are excited by the many growth opportunities for the business, especially in international markets, and Asia in particular,” said Wang. “With Bright Food’s strong resources and our expertise in both the Chinese and broader international markets, we are excellently placed to develop the Weetabix business.”

Rothschild provided financial advice to Bright Food on the deal and Linklaters provided legal advice.

The transaction is subject to regulatory and government approvals in China as well as certain anti-trust approvals. Completion of the transaction is expected in the second half of 2012.