Leading pectin and xanthan gum supplier CP Kelco is to acquire Gold Millet, the second largest producer of xanthan gum in China, the firm told FoodNavigator-USA in an exclusive interview.
The US firm said the move, which it is to publicly announce later today, will boost its production capacity for the product by about 15-20 percent.
The transaction was formally approved by the company's board of directors last week, and is expected to close in mid-February 2006, after receiving approval from the Chinese government.
"This will strengthen CP Kelco's position and allow us to better serve customers across a wide range of applications, including industrial, personal care, food, beverage and pharmaceutical," said the company in an internal statement today.
The hydrocolloid firm currently has three factories globally that produce xanthan gum: its initial plant in San Diego, California, a plant in Okmulgee, Oklahoma and one in Knowsley, UK.
"These plants are currently operating at full capacity and we also need to supplement production by buying some of our volume from outside. This acquisition allows us to continue the expansion of our business by producing internally. We would have had a general sales constraint on our business had we not found the extra capacity," said Mike Size, the company's business unit director for biogums.
Prior to the acquisition, CP Kelco is already buying some of its xanthan gum from Gold Millet in order to supplement its global supply.
The company says it now plans to use the extra production that will be generated through the acquisition of the plant "as a strategic way to grow our business into emerging markets."
One market it will be targeting is the local Chinese market.
"Demand for xanthan gum and other hydrocolloids is developing quite attractively in China. But the demand there has a different quality and cost balance, based on wider specifications and lower price." Size told FoodNavigator-USA.com.
"Our presence locally will help us to have a better understanding and better opportunities in the Chinese market," he added.
As well as boosting production, the acquisition will allow the company to have a "cost-competitive manufacturing base," though Size said this will not have any immediate impact on product prices for customers.
With Gold Millet this year completing a capacity expansion, Size said the first critical issue for CP Kelco is to make sure that that part of the plant is up and running efficiently.
"Once that is achieved, we believe that with our manufacturing and fermentation experience we will have the possibility to increase the quantity and quality of xanthan gum produced there, before even thinking about additional expansion," he said.
However, further expansion in China certainly seems to be on the cards for the JM Huber-owned company.
"CP Kelco and the whole of JM Huber are quite actively engaged in looking at potential opportunities in China, both as a market and as a production base," said Size, adding that the company was not yet ready to reveal further plans.
Indeed, in June the company established an office in China, which it says "will continue to help us explore opportunities within the world's largest country and ensure that we leverage our expertise across Huber as we embark on future ventures in China."
The firm said it will release further information about its Gold Millet acquisition during the first quarter of 2006.