Commentary

Post Holdings Acquires U.K.'s Weetabix From China's Bright Food

Weetabix, the popular British cold cereal, has not fared as well in China as Shanghai-based Bright Food expected it would. This morning, it sold the brand — along with Alpen muesli, Ready Brek, Barbara’s and Weetos — to St. Louis-based Post Holdings for $1.8 billion.

Bright Food “had hoped the cereal would become popular in China as part of a general trend towards more Western eating habits. However, while sales of Weetabix have risen in China, market share has disappointed as traditional rice and steamed bread remain popular breakfast staples,” observes Angela Monaghan for the Guardian.

Post “has been seeking to consolidate parts of the cereals, snacks and protein bar markets through acquisitions since it was spun out of Ralcorp Holdings in 2012,” write James Fontanella-Khan, Arash Massoudi and Tom Hancock for Financial Times.

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This latest deal “affords Post a truly iconic brand,” says Post CEO Rob Vitale, they report. “We tend to use the term loosely, but it fits with the U.K.’s national heritage and deserves the term. Weetabix sits within a mature market but maintains its status in the world’s second largest cereal market.”

“The deal for the maker of oval-shaped cereal bricks” gives the maker of Grape Nuts and Honey Bunches of Oats “a stronger presence in the U.K., which accounted for four-fifths of Weetabix’s 346 million pounds of revenue in the year ended Jan. 2, 2016, according to financial statements,” reportsBloomberg News.

Bright hired Goldman Sachs to run an auction for the well-known British brand less than five years after it took a 60% stake in Weetabix from private equity firm Lion Capital in a deal that valued it at 1.2 billion pounds,” report Reuters’ Adam Jourdan and Lauren Hirsch. Baring Private Equity Asia bought Lion's remaining stake in 2015.

The sale “[does] not signal the end of Bright’s international ambitions,” they write. “This is a part of our internationalization strategy. Selling assets enables us to better expand. Going forward Bright will stick to our overseas push,” according to Bright spokesman Pan Jianjun. 

“Today’s deal is great news for the team at Weetabix and all those who love our brands. The past five years have seen us increase our branded sales at home and overseas,” says Weetabix Food Co. CEO Giles Turrell in a statement about the transaction. “Post is a leader within its markets and shares our commitment to providing great tasting nutritious products for the whole family. I’m confident they will help us open doors for continued expansion.” 

Established as the British and African Cereal Co Ltd., in Burton Latimer, Northamptonshire, U.K., in 1931, Weetabix exports its brands to more than 90 countries around the world. It has factories in Burton Latimer and Corby in the U.K. as well as operations in North America, South Africa, Germany and Spain. It is majority owner of a joint venture in Kenya that serves the African market. It was family-owned until 2003.

“Weetabix has struggled to crack the Chinese market, so it is no surprise to see Bright Food selling up,” Hargreaves Lansdown equity analyst George Salmon tells the BBC. “It's also unsurprising to see one of the UK's biggest cereal brands remain in foreign ownership, due to the pound's weakness. U.K.-listed Associated British Foods was rumored to have been interested in a deal, but any domestic buyers would have had to overcome the headwind of the pound's reduced buying power.”

“Weetabix fits very nicely with Post Holdings…. Post already has a presence in the U.K. via its iconic Grape-Nuts cereal brand and its expertise in marketing and distributing a range of cereals makes it a strong contender to be custodian of the various Weetabix brands,” says Jonathan Buxton, the head of retail and consumer at Cavendish Corporate Finance, report Jillian Ambrose and Sam Dean for the Telegraph. “Post has been highly acquisitive in the past and an acquisition of Weetabix could mark the start of a spending spree on U.K. assets, making the most of its dollar-denominated spending power.”

Despite the weakening of the pound post-Brexit, British Prime Minister Theresa May was feeling her Cheerios this morning as she made a surprise call for an early election on June 8. Her Conservative party reportedly has a 20-plus point lead in polls.

The announcement “comes amid internal political strains over Brexit and moves by Scotland to possibly carve its own independent path to remain in the European Union,” reports Karla Adam for the Washington Post.

“I have concluded the only way to guarantee certainty and stability for the years ahead is to hold this election and seek your support for the decisions I have to make,” she said.

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