Kohlberg Kravis to Acquire Stake in COFCO Meat - Analyst Blog

Kohlberg Kravis Roberts & Co. KKR recently headed a consortium to acquire a stake in COFCO Meat. The latter is a subsidiary of COFCO Group – the largest food processing, manufacturing and trading company based in China. Notably, the financial terms and conditions of the deal were not disclosed.

Further, as per a Bloomberg report, the deal is worth $270 million, out of which Kohlberg Kravis will pay an approximately $150 million for the stake. Other investors included in the consortium are Baring Private Equity Asia, Hopu Investment Management Co. and Boyu Capital. All the three private equity firms are based in China.

What Prompted Kohlberg Kravis to Invest?

Kohlberg Kravis in collaboration with COFCO Meat intends to establish large scale meat production and processing units in China. Large scale operation facilitates the production process and helps ensuring better food quality.

Food safety remains the major issue for the Chinese government, as the country faced major food scandals in the recent past. It involved food contamination ranging from the presence of industry chemical like melamine in baby products to pork injected with bacteria-infested water.

Moreover, though the Chinese economy has somewhat slumped as compared with the  steady growth witnessed during the period 2000–2010, the demand for staple food products like meat remains relatively unperturbed. In fact as per US Department of Agriculture and the China Animal Industry Yearbook, the country is unable to keep up with the surging domestic demand for pork which comprises over 50% of total global consumption.

Therefore, Kohlberg Kravis' latest plan to further expand into the Chinese food industry seems a strategic fit, given the ever-rising demand for healthy food in the country. Earlier the company had invested in Ma Anshan Modern Farming Co. and Asia Dairy Holdings as a part of similar food safety initiative.

Kohlberg Kravis currently carries a Zacks Rank #2 (Buy). Other investment brokers worth considering include Cohen & Steers Inc. CNS, Woori Finance Holdings Co., Ltd. WF and Ameriprise Financial, Inc. AMP. While Cohen & Steers and Woori Finance sport a Zacks Rank #1 (Strong Buy), Ameriprise holds the same Zacks Rank as Kohlberg Kravis.