Recently reported in the Star (12/06), there is a smallish acquisition by public listed company, London Biscuits (confectioner) of acquiring a 20% stake in poultry player Lay Hong  for Rm4.8m or #Rm1.07 per share.
This case is worth noting as London Biscuits is not interested in merely signing a long term supply contract with its supplier, Lay Hong.

We should be able to learn some of good rationales/intentions from this small but interesting acquisition:

From Confectioner’s ( London Biscuit) side:

• the tie-up results in a more strategic relationship with its raw materials supplier which provides a more solid, long term partnership;
• liquid eggs are one of London Biscuit’s highest costs, accounting for 10% of total raw material costs;
• by allying itself with poultry supplier (Lay Hong), this  will ensure that London Biscuits gets a continuous, guaranteed supply of eggs;
• able to protect the company from the vagaries of the market (pricing is more controlled);
• able to benefit from significant savings due to lower packaging costs;
• in view of Lay Hong’s ability to produce the required eggs in line with company’s expansion program ( Lay Hong can produce # 500 million eggs per year );
• can look forward to more stable margins, as the company gets to insulate itself against fluctuations in price;
• provides more opportunities for both parties to work together in the future;
• able to reap capital appreciation as Lay Hong has a good profit trend;
• able to build its branding in the local network (Lay Hong’s products very strong in its local distribution network which has over 5,000 outlets in both urban and rural regions across Malaysia, and it is seeking to gain a foothold abroad. It currently exports liquid eggs to Dubai and Vietnam);
• Lay Hong’s product –nutriplus egg which is a branded egg which are low in cholesterol and contains health supplements such as Omega-3 and Selenium can assist London to move towards more health-oriented line of products;
• able to use the pasteurized eggs of Lay Hong for its impending cake manufacturing production facility.

From Lay Hong’s ( poultry) point of view:

• a good tie up with London Biscuit which guarantee a certain portion of sales;
• further growth in sales if London’s expansion program is on full force;
• unlike Lay Hong which is locally strong in local distribution network, London Biscuits is traditionally strong overseas which # 65% of its revenues derived from exports

In earlier articles, we noted that there are basic rules of thumb to at least initiate merger/acquisition, one of which is the congruence of visions/goals of the CEOs’.  In this case, we seemed to see a strong synchronization of two top executives’ visions/needs.

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