Bright Food to buy control of Tnuva for $960m

Chinese state-backed group to buy 56% stake in Israel's Tnuva in the country's largest outbound dairy deal.

China’s state-backed Bright Food has signed a preliminary agreement to buy a 56.1% stake in Tnuva, Israel’s largest food company, from private equity firm Apax Partners for about $960 million, according to a source familiar with the deal.

The deal is expected to value Tnuva at an enterprise value of about $2.5 billion, the source added.

Once completed, it would be the largest outbound M&A deal in China's dairy industry and the largest M&A deal in Israel's consumer sector.

Bright Food confirmed the deal on its website but not the monetary value.

The company has long harboured ambitions to grow overseas and has had a history of making acquisitions. In 2011, the Shanghai-based company, which makes the White Rabbit brand of candy, acquired a 75% stake in the Australia-based food producer Manassen Foods for A$530 million. In 2012, it acquired a 60% stake in British cereal maker Weetabix for £1.2 billion.

Tnuva was established more than 85 years ago as an agricultural cooperative society and it is the largest food company in Israel, with a dominant market share in the dairy sector. Its produces and distributes a wide range of food products including dairy, poultry, beef and eggs. In 2013, its sales were about $2 billion and its net profit was about $150 million. According to the source, the deal represents a multiple of about 10 times Tnuva’s 2013 Ebitda, adjusted for net debt.

Bright Food was founded in 2006 following the consolidation of several Shanghai food companies. Its core business includes dairy, sugar, wine and food manufacturing.

Bright Food controls four A-share listed companies including Bright Dairy, Jinfeng Wine, Shanghai Maling and Shanghai Haibo. As of 2013, the group has total assets of about Rmb139 billion ($22.3 billion) and sales of about Rmb106bn ($17 billion).

Citi is advising Bright Food on the deal.

China's need to secure food safety has fuelled activity in the sector. And M&A specialists expect activity to continue.

“We can expect this trend of outbound investment in the food industry to continue, as Chinese firms buy into what is in short supply in China; in this case clean, safe and high quality  food,” said Carson Wen, a partner specialising in China M&A at Jones Day. “The Tnuva deal also signifies another trend -- the growing taste of the Chinese consumer for dairy products, in this case particularly cheese,” he added.

Recent deals have included WH Group's acquisition of Smithfield Foods for $4.7 billion last year. Since the milk scandal in 2008 -- which implicated Bright Food and other players -- the Chinese government has encouraged greater consolidation in China's milk industry.

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