Monday, May 7, 2012

Chinese Food Company Bright Foods Buys Iconic British Food Company Weetabix Foods

This is What Happens When Countries Run Trade Deficits

China has amassed a huge amount of foreign currency reserves.  How did they do this, simple, they sold more of their goods and services to western nations than the western nation sold to China. So China is a huge creditor nation which simply means that the United States and European countries owe China for the things we bought from them.  So what is a creditor and a debtor to do in this situation?

Historically the answer is that the debtor starts selling off its assets to pay the creditors.  This doesn’t ever change.  So the United States and Europe are in the process of selling off their assets to pay for all that stuff its citizens and its governments purchased from the Chinese.  The latest asset to go, a huge British food conglomerate known for its most popular brand, Weetabix cereal.

Bright Food, maker of China's White Rabbit candy, will buy 60% of Weetabix Food Co. from London-based buyout company Lion Capital, which will hold the remaining 40%, according to a Bright Food statement. Weetabix is valued at about £1.2 billion ($1.9 billion), including debt, the statement said.

Now in and of itself this is not a big deal.  Companies are bought and sold all the time.  Several times a day a large company is acquired by another large company.  But this ideal is important because it is instructive.  First of all it illustrates what happens to a nation that runs up a huge external debt.  It has to sell assets and it loses control of businesses and property within its borders.  China is not intent on conquering the world, but it does seem intent on buying much of it.

The second issue is that this provides a Chinese company with an entry into the distribution of food products in Britain, the U. S. and other major countries.

In the Bright Food deal, Weetabix offers the Chinese company established retail-distribution channels in major Western markets such as the U.S., Canada, Italy and Israel and will provide bargaining power to Bright Food as it seeks retail shelf space in the West, said Marcia Mogelonsky, an analyst for London-based market-research firm Mintel.

Bright Food said in its statement Thursday that the deal would allow it to expand Weetabix's cereal offerings, including Alpen muesli, Ready Brek porridge and the U.K. company's namesake brand, across Asia.

All of this portends more Chinese food coming to a neighborhood near you.  And soon.  For the Chinese seem to have learned a very important lesson.  It is far less expensive to buy a country than to conquer one.

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