Dutch dairy firm intends to buy 50mln shares of EFoods

Karachi: A Dutch dairy cooperative said on Friday it intended to buy almost 50 million shares or half of the free float of Engro Food at an estimated value of Rs7.6 billion.

“This is a public offer by Friesman Campina International Holding BV to acquire up to 49.8 million ordinary shares of the Engro Foods Limited, representing 6.5 percent of the total used ordinary share capital of the target company at an offer price of Rs151.85 per share,” Engro Foods said in a statement to the Pakistan Stock Exchange. 

In March, the Dutch company expressed its interest in acquiring 391 million shares (51 percent of 766.6 million shares) of EFOODS from its major shareholder Engro Corporation.  

Under the substantial acquisition law, if a company intends to buy more than 25 percent of stakes in the PSX-listed company, it has to make an offer for buying half of the free float of the target firm.

A number of local players have entered into the dairy processing sector in the recent years.  But, the entry of a Netherlands company will be first in its kind of foreign investment in the industry. 

Analyst Zeeshan Afzal at Insight Securities said competition is getting tough in the dairy sector. “Therefore, the margin is on the decline,” he said.  

Afzal said apparently Engro Foods’ sponsor was looking for an experienced foreign partner in the wake of a cut-throat competition posed by rivals Fauji Foods, formerly Noon Pakistan, Day Fresh and Nestle.

Analysts said the ultra high temperature market has already been saturated and there is a need of value addition. Infant formula milk or other high quality nutritious products need comprehensive research resources, which local players still lack. 

For Friesman Campina, this section is untapped.  Recently, ICI Pakistan Limited announced its partnership with Morinaga Milk Industry Company Limited of Japan and Unibrands Private Limited to establish a plant for manufacturing Morinaga infant formula products.

EFoods buyout will be a win-win situation for both Engro and the Dutch company.  “Engro is materialising its returns,” Afzal said. “The [possible] acquisition will add to its profitability.”