"Under the proposed agreement, Nestle intends to acquire 60 percent of Hsu Fu Chi whilst the Hsu family will own the remaining 40 percent," said Nestle in a statement.
Nestle will offer 4.35 Singapore dollars (€2.50) for each share of the company, which is listed on the Singapore stock exchange. This would be a premium of 24.7 percent above the firm's six-month average share price.
It added that it has secured approval for the deal from the Chinese firm's two largest independent shareholders -- Arisaig Partners which holds 9.0 percent and subsidiaries of the Baring Asia Private Equity Fund which hold 16.5 percent of the firm.
Nestle chief executive Paul Bulcke said the partnership would boost the group's presence in China.
"It also demonstrates our long-term commitment to China and enhances our ability to grow our portfolio of international and local brands in this dynamic market," added Bulcke.
Hsu Fu Chi's net profit for the quarter ending March 31st reached 206.6 million yuan (€22.0 million), with revenues at 1.5 billion yuan, according to its latest income statement.
The firm operates four large-scale factories in China and employs 16,000 people.