US giant offers $141m to buy WAPC

United States spice and flavoring giant McCormick & Co has made a $141 million offer for Wuhan Asia-Pacific Condiments Co, a privately owned spice and flavoring manufacturer.

"The board of directors has reached an agreement on this deal. But I cannot give more details, as we are waiting for approval from the authorities," an official with WAPC's public relations department told China Daily on Wednesday.

WAPC Chairman Li Dahua was quoted by local newspaper Chutian Metropolis Daily on Wednesday as saying that "the board has agreed to sell the company, and related work is underway".

McCormick said the WAPC's DaQiao and ChuShiLe brand bouillon products will complement its current lineup of spices, seasoning blends and sauces for the Chinese market. The deal, which must be approved by regulators, is expected to close in mid-2013, the Associated Press reported on Monday.

DaQiao monosodium glutamate is the best-selling seasoning brand in Wuhan, capital of Hubei province, according to Chutian Metropolis Daily.

WAPC produced 2 tons of MSG and 4 tons of chicken condiment in 2011, achieving revenue of 800 million yuan ($127 million).

McCormick said it expects continued annual sales growth of at least 10 percent.

It expects the acquisition to slightly lower its fiscal 2013 profit, as a result of integration and financing costs, before boosting its earnings per share in 2014 and reaching its full potential in 2015, after the company is fully combined.

The Sparks, Maryland-based company said it expects to record about $4 million in 2013 costs related to the acquisition.

"Actually, WAPC is doing very well. The $141 million offer made by McCormick is not very high, considering WAPC's $127 million revenue in 2011," said Huang Mao, a food industry analyst with Guosen Securities, a leading Chinese financial services firm.

Condiment industry players face risks due to rising material costs and a sluggish food industry. But the major reason for the acquisition is McCormick's ambition to gain a slice of the Chinese market, said Huang.

Jiang Xiaodong, an analyst from Huatai United Securities, said that "the use of condiments by restaurants in China is a 150 billion yuan industry at the moment.

"When you add household consumption, the total market is massive. Chicken-based condiments are the most promising for investment," said Jiang.

Overseas companies have been targeting the market for years. As early as 1998, Nestle bought an 80 percent stake in both Shanghai Totole Food Co Ltd and Xi'an Flavor and Food Co Ltd.