In the casino of dealmaking, a small bet on a potentially big return is often worth making. Nestlé has done just that. The S$2.1bn it is offering for 60 per cent of Singapore-listed Hsu Fu Chi is less than 1 per cent of the Swiss food group’s market capitalisation. And the Chinese food maker will only add about 0.5 per cent to Nestlé’s Sfr110bn in revenues last year. Yet for what is effectively a rounding error, the Swiss giant has agreed to buy an extensive distribution network in everyone’s dream market. Hsu Fu Chi is a call option on growth in the Chinese middle class.

The option does not exactly come cheap. The S$4.35 per share offer price values Hsu Fu Chi at a full 26 times next year’s earnings – about a 25 per cent premium to the company’s share price before bid speculation broke out this month. Nestlé itself trades at 16 times its 2012 earnings. Furthermore, if Hsu Fu Chi, which has clashed with regulators in the past, were to suffer any health and safety problems, the reputation of Nestlé’s broader business could suffer. Finally, there are disturbing precedents. Private equity group Blackstone and Unilever, the British food maker, have encountered regulatory trouble while attempting to raise food prices in China.

Still, the downside for Nestlé is limited. Although many of Hsu Fu Chi’s products are discretionary purchases, the food sector is still reasonably defensive. And if the investment sours, Nestlé’s income statement will barely notice. Also, adverse currency swings are unlikely; there is pressure from all sides for the renminbi to appreciate. That would be welcome for Nestlé, which has for years watched the currencies of its important trading partners sink against the Swiss franc. The currency hedge provides a nice kicker for a bet worth making.