What do the following companies have in common? In no particular order they are Volvo, Manganese Bronze, Smithfield Foods, Weetabix and House of Fraser. The answer is that they are all iconic brands there were once owned by either European or American outfits – but not anymore. Today they belong to Chinese companies. China has, in case you haven’t already worked out, been on an acquisition spree. Over the last few years, the world’s second-largest economy has been busy spending some of its foreign reserves, which is reckoned to top $3 trillion, on buying up overseas businesses. Or as…
The answer is that they are all iconic brands there were once owned by either European or American outfits – but not anymore. Today they belong to Chinese companies.
China has, in case you haven’t already worked out, been on an acquisition spree. Over the last few years, the world’s second-largest economy has been busy spending some of its foreign reserves, which is reckoned to top $3 trillion, on buying up overseas businesses.
Or as far as China is concerned if you have the money then why not invest it on something useful. Why would you want to keep it tied up in US Treasuries earning next to nothing in interest?
The four prongs
China’s foreign acquisitions can be divided into four distinct groups. The first category is food producers. Currently, China owns around a-tenth of the world’s farmland. However, it also consumes around a-fifth of the world’s food supply. Those numbers don’t quite add up, which is why Chinese companies are increasingly hunting and gathering food companies overseas.
It has already snapped up America’s Smithfield Foods, making it one of the largest pork companies in the world. The S$6 billion takeover of Smithfield by Shanghui International isn’t the only high-profile acquisition that Chinese company have made. Two years ago, Shanghai’s Bright Food acquired 60% of Weetabix, which owns the eponymous breakfast cereal. The Chinese food conglomerate is now said to be setting its sights on a S$3 billion deal for Israel’s cheese maker Tnuva.
Food glorious food
It would seem that no company is immune from a Chinese acquisition. In Singapore there are around a dozen listed food producers. They range from the relatively small but nonetheless important Khong Guan Flour Milling (SGX: K03) to the S$2 billion chocolate maker Petra Foods (SGX: P34).
Yeo Hiap Seng (SGX: Y03), which traces its roots back to China’s Fujian Province, is an interesting business. The company’s strong brand coupled with its special understanding of Asian taste buds could make it a fascinating target for a Chinese food producer.
Apart from food, China also needs resources. It is reckoned that last year, China bought around S$6 billion worth of Australian-owned mining and energy assets. Last year’s acquisitions added to the S$22 billion worth of purchases that the company has made over the past five years in the resources-rich country. The Australian acquisitions were trumped only in Canada, where Chinese companies splashed out more than S$50 billion on the purchase of resource outfits.
Singapore, whilst not exactly resources-rich, is home to some of world’s biggest farmers. Only recently, Noble Group (SGX: N21) injected 51% of its Noble Agri subsidiary into a joint venture than includes COFCO and HOPU. That could be a sign of things to come.
Show me your palm
Energy is another area that China is likely to increasingly turn its focus. The country is the second-largest consumer of oil after the United States. In the past China has been heavily reliant on coal. But with pollution high on the country’s agenda, China is likely to switch its focus to cleaner oil and gas generators.
As we have seen in the past, price is unlikely to be a barrier, following China National Offshore Oil Company’s S$20 billion purchase of Canada’s Nexen.
This is where our Singapore-listed palm oil producers could serve two master, namely food and biofuel production. Currently, many palm oil farmers are trading at attractive price-to-sales valuations. They include Wilmar International (SGX: F34), which is valued at 0.4 times sales and Golden Agri-Resources (SGX: E5H), which is valued at 0.9 times historic revenues.
Global brands are another area that Chinese companies are keen to get their hands on. Hence, their acquisition of Volvo, MG and, more recently, department store group House of Fraser. It can take years for a company to develop a brand. So what better way to break into new markets than to buy an existing, ready-made label?
Brands are something that Singapore has plenty of, thanks to years of investment in distinctive marques. The list, includes Old Chang Kee (SGX: 5ML), which dates back to 1956; Haw Par Corporation (SGX: H02), which can trace its beginnings to 1926 and Eu Yang Sang (SGX: E02), which is over 130 years old.
Acquisition targets might be two a penny. But it has to be said that trying to second-guess China’s targets of desire could be a thankless task. What is undeniable, though, is that China is going global. That has to be a positive for Asian markets as the Eastern Dragon, which has been sitting protectively on top of its pile of cash, starts to spend some of its closely guarded hoard.
A version of this article first appeared in the Independent on Sunday.
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