Saudi Arabia’s food firm National Agricultural Development Company (Nadec) plans to start merger talks with Al Safi Danone Company, a joint venture between Saudi Arabia’s Al Faisaliah Group and French food firm Danone Group.
Nadec is proposing a tie-up with Al Safi Danone by buying all of Safi’s shares through a capital increase in Nadec, according to a Nadec statement posted on the kingdom's Tadawul stock exchange website.
The two companies have signed a six-month memorandum of understanding to commence merger talks and have agreed on an exclusivity period during which they will conduct financial, commercial and legal due diligence.
Current Al Safi shareholders will own 38.75 per cent of Nadec’s pro forma issued share capital upon completion of the proposed merger.
“The entry into these discussions does not guarantee that the proposed transaction will be completed,” Nadec said.
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[ Middle East M&A deal volume declines in first half of 2017 ]
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The Public Investment Fund, the country’s sovereign wealth fund, owns 20 per cent of Nadec, according to the stock exchange website.
Nadec has a market capitalization of 2.59 billion riyals.
Nadec and Al Safi compete with Saudi Arabia's Almarai, the Arabian Gulf’s largest dairy company.
Last month Savola Group, one of the top food product companies in Saudi Arabia, said it was selling a 2 per cent stake in Almarai, a deal that could help boost Savola's sagging income. The sale of 16 million Savola shares in Almarai at 70 riyal a share will yield 1.12 billion riyal (US$307.6 million). The transaction will reduce Savola’s shareholding in the dairy company from to 34.52 per cent from its current level of 36.52 per cent.
Consumer spending in Saudi Arabia, Opec’s top oil producer, has declined amid lower oil prices and slower economic growth, which has affected retailers in the region’s biggest economy.
Mergers and acquisitions (M&A) in the region remain sparse. In the first half of this year, the number of M&A dropped 23 per cent to 192 deal from 250 deals in a year-earlier period, according to advisor Ernst & Young. The value of deals plunged 17 per cent to US$31.9bn in the first half from $38.9bn in the year-earlier period.