Savola Group, the Saudi conglomerate with units in the retail and food sectors, has excited analysts with plans to buy minority stakes in two of its biggest subsidiaries. Earlier this week the company revealed it had reached a deal to acquire minority stakes in the Savola Foods Company and Al Azizia Panda United from Al Muhaidib Group via a share swap, albeit for a hefty premium. Analysts point out that Savola seems to be paying the equivalent of 32 per cent above market value but the price could be well worth it as the deal coud help the company drive growth by focusing on core operations.
"Management has been outspoken in highlighting that their focus is on their core businesses, with this proposed acquisition of stakes supporting their statements," said Farouk Miah, an analyst at NCB Capital, based in Riyadh. "By acquiring the stakes from Al Muhaidib Holding, Savola is again showing its commitment to its core food and retail businesses," said Mr Miah. "By focusing on the core businesses, we believe Savola management will be less distracted with non-core operations, enabling them to maximise the potential in these business units."
The expansion of Savola's retail business is focused on aggressively adding supermarkets and hypermarkets under its Panda and Geant franchises. The company bought 11 Geant supermarkets last year and plans to have a total of 120 supermarkets and 40 hypermarkets by 2012 up from the 81 supermarkets and 33 hypermarkets it had at the end of last year. If regulators give the latest stake acquisitions the green light, Savola will have completed its second share swap with Al Muhaidib since 2008. If the deal completes, Al Muhaidib Group will become the largest shareholder in the company, holding a 14.8 stake in Savola.
Investors should take Al Muhaidib's move as a vote of confidence in Savola's strategy and follow suit. email@example.com