US firm eyes food additive producer Gum
Warburg Pincus previously pulled out of a deal for Harbin Pharmaceutical
Warburg Pincus, a US-based buyout firm, plans to acquire Shangdong-based Gum, the world's second-largest producer of a food additive, with about US$100 million in financing in a leveraged buyout, according to sources.
The source did not disclose how much Warburg Pincus is paying for the acquisition, or the size of the stake it plans to buy.
Gum produces xanthan gum, made from fermented corn sugar which can replace gluten in baked goods, such as pizza bread.
The chemical is also used as a thickening agent in cosmetics and in the oil industry.
The company, which has an annual production capacity of 20 kilotonnes mainly for exports, supplies such multinational food companies as Kraft and Unilever.
The move marks a second attempt at a buyout in China for Warburg Pincus after it was forced to pull out of an attempted leverage acquisition of Harbin Pharmaceutical, which makes antibiotics and traditional Chinese medicines.
Warburg Pincus and partners Citic Capital and domestic venture capital firm Chenergy, scrapped a US$282 million loan that would have funded the takeover after the liquidators of defunct brokerage China Southern Securities, which owned 58 per cent of the company, decided to invite other bidders into the sale.
The liquidators' move was made possible in December when Beijing changed the securities law that governed buyouts, allowing sellers to offer blocks of shares to more than one bidder. The Warburg consortium may try to get a leveraged deal off the ground again, market sources said.
Warburg Pincus declined to comment.
Leveraged buyouts typically use debt, secured by the assets that are bought, to gain control of a company
Rival buyout firm Carlyle Group has also ran into trouble with its planned US$375 million takeover of Xugong Construction Machinery, the mainland's largest construction equipment maker.
That deal, in the works for three years, stalled after the Ministry of Commerce refused give the go-ahead unless Carlyle agreed not to sell a controlling stake in Xugong on to a foreign construction company.
A public consultation period was held earlier this month and final approval is pending, market sources said.
Meanwhile, Pacific Alliance, an Asian private equity fund, managed to acquire Goodbaby Group, which sells strollers and cribs, with a US$122.5 million loan this year.
Buyout firms, despite the trouble in finalising deals in China, have been raising record amounts of funds and are eager to put that money to work in the world's fastest-growing major economy.
'It's just the evolution of the market ... [with] interesting trials and errors,' said one Hong Kong-based leveraged finance banker. 'The interest level is still high and we'll find ways to get [deals] done.'
Beijing changed securities law on buyouts in December
Pacific Alliance acquired Goodbaby with US$122m loan
Carlyle's US$375m Xugong deal still stalled after three years