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Book (Donald M. DePamphilis - Mergers, Acquisitions, and Other Restructuring Activities

Case 18-1: Nestle Buys Majority Ownership Stake in Chinese Candy Maker pp. 672674

1. What were Nestls motives ?or acquiring Hsu Fu Chi? What were the firms alternatives to acquisition, and why do you believe they may not have been pursued?

2. What alternatives did the majority shareholders in Hsu Fu Chi have for growing the firm? Speculate as to why they may have chosen to sell a controlling interest to Nestl?

3. Speculate as to why Nestl used cash rather than its stock to acquire its ownership interest in Hsu Fu Chi.

4. Why do you believe the independent and noninstitutional shareholders in Hsu Fu Chi, whose shares were listed on the Singapore stock exchange, were willing to sell to Nestl? What were their other options?

5. Nestl is assuming that it will be able to grow its share of the Chinese confectionary market by a combination of expanding its existing Chinese operations (so-called organic growth) and acquiring regional candy and food manufacturers. What obstacles do you believe Nestl could encounter in its efforts to expand in China?

6. Do you believe that multiples of revenue paid by other good companies is a good means of determining the true value of Hsu Fu Chi? Why? Why not?

7. Despite having similar profit margins, Hsu Fu Chi traded at a ratio of 22 times trailing earnings, compared with 28 for comparable firms. Why do you believe Hsu Fu Chis share price on the Singapore stock market sold at a 21% discount from the share price of other firms?

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