March 8, 2010

Hormel seeks expansion for Chinese market

Hormel Foods Corp wants to expand in China with an acquisition or a joint venture, according to CEO Jeffrey Ettinger.

The chief executive officer says Hormel is at the higher end of the Chinese market but would like to get more into the mid-tier markets.

Austin, Minnesota-based Hormel has had joint ventures in China since 1994 and currently generates US$47 million in annual sales there. Non-US revenue was US$334.9 million in fiscal 2009, about 5% of the company's total. Hormel owns a research and development unit in Shanghai, and jointly operates plants in Shanghai and Beijing.

Ettinger said Hormel prefers to get involved in a joint venture or acquisition, as the company is doubtful of its ability to create its own brand that will be seen as local. Hormel sells products under the Spam and Hormel brands in China.

The transaction budget is placed at US$1.5 billion, which is much more than the US$40 million to US$350 million deals in the past. Hormel has US$449.1 million in cash and equivalents as of January 24, according to a company report.

Ettinger said they would be willing to borrow at least a billion for the right deal.

Hormel operates outside the US mostly through joint ventures and has minority ownership of food businesses in Mexico, the Philippines and Vietnam. International sales growth outpaced US growth in 2007 and 2008. Both segments declined at about the same rate in 2009.