Controlling Share of Tnuva Sold to Chinese Company

Under terms of a preliminary accord, Bright Food said on Thursday it will buy 56 percent of dairy firm Tnuva from private equity house Apax for an undisclosed sum.

Dudu Bachar

China's Bright Food Group Co Ltd has struck a deal to buy control of Israel's largest food company, gaining new products and technology as it chases rivals that have overtaken it in China's fast-growing cheese and dairy markets.

Under terms of a preliminary accord, Bright Food said on Thursday it will buy 56 percent of dairy firm Tnuva from private equity house Apax for an undisclosed sum. A person familiar with the transaction said it values all of Tnuva at about $2.5 billion, up from $1 billion when Apax and Israeli investor Mivtach Shamir Holdings Ltd took control in 2008.

The deal, the latest in a multi-billion dollar overseas acquisition spree by Bright Food, will give the Chinese firm access to both new cheeses and the Israeli firm's technological know-how in dairy production, trade sources and analysts said. Best known for its cottage cheese, Tel Aviv-based Tnuva booked 2013 revenue of 7.17 billion shekels ($2.05 billion) supplying a range of cheeses, as well as milk, yoghurt, meat and eggs.

The investment comes as increasingly affluent Chinese consumers opt to pay more for imported goods in the wake of safety scandals in local food supply chains, attracting the attention of global food giants as well as China's producers. The Chinese cheese market will be worth 2.7 billion yuan ($433.13 million) this year, doubling to 5.3 billion yuan by 2018, according to consultancy Euromonitor.

"China is still a niche market but there's lots of room for growth. We're getting increasing interest from international clients who are interested in China," said Matthieu David-Experton, Shanghai-based CEO at Daxue Consulting.

"The imported aspect is key because it makes it a more premium product in China and plays into the food safety trend," he said.

High tech

Mivtach has 10 days to decide if it wants to join Apax and sell its 21 percent stake to Bright Food, according to a source close to the deal. Apax declined to comment on details of the deal while a spokesman for Mivtach could not immediately be reached.

A group of kibbutzim, or cooperative farms, own the rest of Tnuva. Bright Food said it will look to strengthen cooperation with smaller shareholders, rather than buy them out, and hopes to close the deal by the end of the year.

As China's cheese market has developed, Bright Food has lost out. The country's dominant cheese producer with a quarter of the market by value in 2009, it dropped back to hold just 8.3 percent last year, according to Euromonitor data.

The deal could also give Bright Food access to Tnuva's dairy processing technology, increasing its dairy output, analysts said. Bright Food was China's fourth-biggest dairy producer last year by retail value.

"Israel is a country with highly developed agriculture and animal husbandry techniques. Tnuva, as Israel's largest food company, has a long history and various products and large market share," a Bright Food spokesman said in a text message sent to Reuters.

Bright Food has been making ripples globally in the past few years, with deals to buy Australian branded food business Manassen Foods and British breakfast cereal maker Weetabix valuing the firms at A$500 million ($460.85 million) and 1.2 billion pounds ($2.03 billion) respectively.

In January Bright Food bought Australian dairy company Mundella Foods, while other previous purchases include New Zealand's Synlait Milk Ltd.

Bright Food owns four mainland-listed companies including Shanghai Jinfeng Wine Co, Shanghai Haibo Co , Shanghai Maling Aquarius Co and Bright Dairy & Food Co.