KKR to Acquire China Chicken Processor Stake for $400 Million

Aug 26, 2014 5:32 pm ET

Aug. 27 (Bloomberg) -- KKR & Co., the private-equity firm led by billionaires Henry Kravis and George Roberts, agreed to acquire a minority stake in China’s largest chicken breeder and processor for about $400 million.

KKR will buy 18 percent of Fujian Sunner Development Co., the Chinese company said yesterday in a statement. The companies will form a partnership to expand Fujian Sunner’s operations to provide meat that’s safe to eat, according to the statement.

Food quality has become a major concern in China in recent years following a string of incidents in which products were found to be tainted. Earlier this month, H.J Heinz recalled some batches of flour in the country after one was found to contain high levels of lead. In July, a recall of meat from a Shanghai unit of OSI Group LLC, a U.S. company, prompted McDonald’s Corp. to pull some items from its Chinese restaurants.

Fujian Sunner said it aims to ensure quality by controlling all stages of production, from farming to processing.

“Vertically integrated chicken farming is a key solution to the food safety threats facing China’s animal protein sector,” Julian Wolhardt, an executive at New York-based KKR, said in yesterday’s statement.

China protein demand is booming as its middle class expands. The country accounts for 15 percent of global chicken demand, according to data compiled by Bloomberg, and most of that meat comes from small farmers and processors. Large-scale producers make up 30 percent of chicken supply, compared with 95 percent in the U.S., according to Fujian Sunner.

Bird Flu

Rising meat consumption and the desire for better food standards is attracting other foreign companies to China, such as Tyson Foods Inc., the biggest U.S. meat company, which is investing in chicken houses and processing plants. The spread of bird flu in China in the last year has reinforced the need for the kind of biosecurity measures Tyson uses at its operations, the company’s Chief Executive Officer Donnie Smith said last month.

China has also invested in foreign meat companies. Hong Kong-based WH Group Ltd. bought U.S. pork producer Smithfield Foods Inc. last year for $4.73 billion.

KKR, which oversaw $98 billion in assets as of June 30, manages a $6 billion fund making investments in Asia, the largest private-equity fund dedicated to the continent. The firm, founded in 1976, also manages a $1 billion fund that makes growth-equity investments in Chinese companies.

The firm has done at least two other deals in China this year: Investing in Cofco Meat Investment Co., a hog processing company, and Qingdao Haier Co., which sells consumer electronics and home appliances. KKR’s other China investments include China Cord Blood Corp., a blood-bank operator, and Novo Holdco Ltd., a clothing retailer.

--With assistance from Devin Banerjee in New York.