Nadec, the Saudi food and beverage company in which the kingdom's sovereign wealth fund has a 20 per cent stake, agreed to buy rival Al Safi Danone in a deal that will be funded through a 536 million Saudi riyal ($143m) capital increase.
Nadec’s share capital will rise 63 per cent to 1.38 billion riyals through the capital increase, the company said in a statement to Tadawul where its shares are listed. As a result of the transaction, 61.25 per cent of shares in Nadec will be held by existing shareholders and the remainder by existing Al Safi Danone shareholders. The acquisition is subject to approval by shareholders and regulatory authorities.
“The Transaction will allow both companies to better serve customers and realise benefits not available on a standalone basis,” said Abdulaziz Al Babtain, managing director of Nadec. “It will create a platform for future growth and, importantly, drive significant value creation for shareholders. The transaction will also contribute to the goals of Saudi Arabia’s Vision 2030 by strengthening the private sector.”
Nadec's shares rose as high as 7.9 per cent following the announcement.
Merger and acquisition activity is picking up in the region as companies seek expansion into new markets amid an uptick in investor appetite for transactions. The value of M&A in the Middle East rose 21 per cent to $6.6 billion in the fourth quarter of last year compared to the previous quarter, according to law firm Baker McKenzie.
Cross regional M&A deal volumes rose 8 per cent, while deal value increased 85 per cent in the fourth quarter from the previous quarter. About 85 per cent of all Middle East M&A was cross-border in the fourth quarter, with the UAE taking number one spot for both inbound and outbound deals in the region.
Nadec and Al Safi compete with Saudi Arabia's Almarai, the Arabian Gulf’s largest dairy company.
Nadec said the acquisition will bolster its dairy products and expand its footprint in Saudi Arabia, UAE, Kuwait, Bahrain, Jordan and Lebanon, and grant it access to high-growth markets including Iraq.
The deal will also help Nadec boost its cashflow and profitability and cut costs in the fields “of farming, manufacturing, supply chain and sourcing, sales and marketing, and the corporate centre and associated functions, as well as potential revenue opportunities derived from a wider distribution network and customer reach, and trade optimisation.”