Riyadh

Almarai ideal for NFPC stake

Almarai’s head office in Riyadh

Almarai, the Gulf’s largest dairy company, is leading the scramble for a majority stake in Abu Dhabi’s National Food Products Company (NFPC) with three other groups in contention.

But trade circles believe Almarai would be a fitting choice for the stake considering its longstanding expertise in the dairy and juices sector and its strong presence and prestige in the Gulf markets.

Among the main contenders is US private equity firm KKR.  The other bidders for NFPC are believed to include an international financial firm and an international industrial firm.

The rivalry for the bid highlights the appeal of the Gulf food and dairy sector, reports Reuters.

With young, fast-growing populations and evolving culinary tastes, Gulf countries are seen as big potential growth markets for food.

Global milk prices are also low, making dairy a target for deals, and KKR has made successful investments in dairy in China in recent years, the news agency noted.

NFPC, one of the largest food and dairy manufacturers in the UAE, whose brands include Milco, Lacnor and Oasis bottled water, appointed Emirates Investment Bank in October to arrange the sale, aimed at raising up to $1.5 billion.

For its bid, KKR is teaming up with Dubai-based Fajr Capital, which mainly pools sovereign funds to invest in Muslim countries.

Fajr announced it had completed the purchase of restaurant franchise company Cravia, which operates Cinnabon and Five Guys hamburger restaurants in the Gulf.
 

Milking operation at an Almarai facility

Milking operation at an Almarai facility

KKR and Fajr teamed up last year to bid for fashion retailer Azadea Group, which has stores for brands like the Gap and Intimissimi in the Middle East, although that deal has stalled. KKR was also part of a 2014 bid for Americana, operator of Middle East franchises for Pizza Hut and KFC restaurants.

NFPC and Fajr Capital declined to comment. KKR did not immediately respond to a request to comment, said the news agency.

Private equity bidders would face a strong rival in Almarai, which said in April that it was interested in buying a controlling stake in NFPC and had already been invited to conduct due diligence.

NFPC, which also has a joint venture with Danish dairy giant Arla Foods, was founded by Lebanese-born businessman Fady Antonios and the local Bin Hamoodah group.

Antonios is looking to raise funds for the company’s expansion and reduce his own stake in preparation for his eventual retirement, sources familiar with the matter said.

NFPC has already started work on the first phase of a $400 million development of a production complex in Abu Dhabi›s Khalifa Industrial Zone.

Almarai’s potential acquisition in NFPC would help the Saudi company gain a strong foothold in the UAE and boost their distribution into other Gulf countries such as Oman, Muhammad Faisal Potrik, head of research at Saudi Arabia’s Riyadh Capital, said.

He believes a rival dairy and juice company would be a better fit for NFPC than private equity firms like KKR, because of prior sector expertise and potential economies of scale.

“Private equity would need to bring in experienced management to run operations, something which existing operators already have,” Reuters quoted him as saying. 

Almarai made a Q1 profit of SR308.5 million ($82.3 million), up from SR306.5 million in the year-earlier period. 

As well as being a dairy and juice producer, the company has lines for bakery and poultry products and infant nutrition.

In 2009 the company pooled resources with Pepsico to expand beyond the GCC region. The two launched a joint venture called the International Dairy and Juice (IDJ) Company.

The company has some 95,000 dairy cows and has produced its own fodder over the years. However, animal feed has become a major concern as the government has banned fodder production to conserve scarce water. Almarai stated earlier this year its costs will rise as it will have to import the feed.

Additionally, the increase in utility prices announced by the government will push up costs and curtail profits.

Earlier this year it was reported that talks between Qalaa Holdings and Almarai on the sale of Egypt’s largest dairy farm business had stalled. Dina Farms could have fetched $300 million and it is possible the talks will be revived at a later stage.

Qalaa, the private equity firm formerly known as Citadel Capital, is selling off some of its assets as it seeks to return to profitability after five years of losses.