Dutch company expresses intent to buy Engro Foods

Proposed transaction, likely to be over $500m, will be largest deal in private sector

KARACHI:

In what could become the largest private sector acquisition in the country by a foreign company, FrieslandCampina International Holding BV has expressed its intention to acquire 51% (majority) stake in Engro Foods, according to a notice sent to the Pakistan Stock Exchange on Thursday.

The Netherlands-based, FrieslandCampina, one of the world’s six largest dairy companies with €11.3 billion in annual revenues, has proposed to acquire 51% (approximately 390,963,998 shares) of voting shares worth Rs53 billion (at current share price) in Engro Foods, the second most profitable subsidiary of Engro Corp., Pakistan’s largest private sector conglomerate.

“It is the largest ever deal in the [country’s] private sector,” a report by AFP said quoting Standard Capital Securities’ Head of Research Faisal Shaji.

If it were to materialise, the transaction - which is likely to bring in over $500 million (as per the current exchange rate) in foreign portfolio investment - will be even bigger than the buy-back of shares by Unilever Pakistan, which delisted from the bourse in 2013, Taurus Securities’ Head of Research Zeeshan Afzal said.

The Dutch dairy giant refused to comment on queries regarding its interest in Pakistan’s dairy sector and Engro Foods in particular saying “at the moment, we cannot give further details”. Market analysts, however, say the development will increase competition in the dairy sector, especially in the powdered milk products, such as infant formula and nutritional milk.

Shortly after the announcement notice, the share price of both Engro Corp. and its foods subsidiary, hit the upper circuit after increasing 5% on Thursday. The stock of Engro Corp. increased by Rs14.12 per share and closed at Rs296.56 per share after more than 5 million shares were traded resulting in an upper cap. On the other hand, Engro Foods share price increased instantly by Rs6.49 per share to close at Rs136.35 after hitting its upper limit because of which only 196,700 shares changed hands.

Engro Foods is the second most profitable subsidiary of Engro Corp., which has outperformed the benchmark KSE-100 Index by 245% since its listing (initial public offering) in 2011 - the local foods giant more than doubled its net profits to over Rs3 billion in financial year ending December 31, 2015.

Engro Corp. holds 87% stake (667 million shares) in Engro Foods while the remaining 13% (99.7 million shares) is free float (shares traded on the bourse).

Engro Corp.’s holding, Topline Securities said, is expected to be reduced to 36% (276 million shares) in case of a successful completion of the transaction for which Citigroup Global Markets Limited is the financial advisor.

Engro Corp. has already expressed its intention to offload some of its shareholdings from agri-based, chemicals, and consumer goods subsidiaries to invest and focus on its energy businesses: Engro Powergen Qadirpur, Elengy Terminal Pakistan Limited and The Sindh Engro Coal Mining Company Limited.

The company has already appointed advisors to sell off 24% stake in its fertiliser business.

Engro Corp. started off as a fertiliser company and then ventured into the foods business but it now seems to be shifting from an agri-based company to an energy company, Afzal, the research head at Taurus Securities, said explaining why the conglomerate is selling stakes in its subsidiaries.

“They are likely to invest the money in new power projects,” Afzal said adding they might invest in the second liquefied natural gas (LNG) terminal the government plans to set up - Engro Corp. didn’t respond to our queries till the filing of this report.

Regarding Friesland Campina’s entry to Pakistan, Afzal said that given former’s strong background in dairy, the entry will result in increased competition.

With offices in 32 countries, FrieslandCampina supplies consumer products, such as dairy-based beverages, infant nutrition, cheese and desserts in many European, Asian and African markets. It also supplies ingredients and half-finished products to manufacturers of infant nutrition, the food industry and the pharmaceutical sector around the world.

Published in The Express Tribune, March 4^th, 2016.

Like Business on Facebook, follow @TribuneBiz on Twitter to stay informed and join in the conversation.