July 13, 2016

FrieslandCampina to acquire 51% stake of Pakistan's Engro Foods


Royal FrieslandCampina N.V. has signed a share purchase agreement with Engro Corporation to acquire 51% of shares in its subsidiary Engro Foods Limited.


The transaction will be conducted in partnership with the World Bank Group's International Finance Corporation (IFC) and the Dutch development bank FMO. The acquisition of Engro Foods, which is the second largest dairy company in Pakistan, enables FrieslandCampina to obtain a key position in Central Asia. Pakistan is the third largest milk producing country in the world with an annual production of 38 billion litres of milk.


FrieslandCampina expects to benefit from the conversion of the market from loose to packaged dairy consumption that will drive the volume growth of packaged dairy products. At present, less than 10% of tradable milk consumed in Pakistan is processed and offered in packages. The conversion is expected to accelerate in the near future as a result of the growing middle income class, a desire for higher quality milk, as well as increasing urbanisation.


Roelof Joosten, CEO of Royal FrieslandCampina N.V., said: "The cooperation with Engro Foods will accelerate FrieslandCampina's route 2020 strategy. Through this well organised and highly successful company, we will obtain a significant presence in the Pakistani dairy market in which a growing middle class is switching to buy more processed and packaged milk. Engro Foods offers us a basis on which we can build further. This acquisition will contribute to the value creation for our member farmers. We will also contribute to Pakistan's agricultural sector through knowledge transfer of dairy production and our established dairy development programme."


"This is a defining moment for Pakistan", Hussain Dawood, chairman of Engro Corporation, commented. "This partnership enables us to provide a wider array of affordable high quality dairy products for a healthier Pakistan, especially for its younger population. Improving the wellbeing of millions of our farmers is a cause that our Group has been focused on for the past five decades. Working with FrieslandCampina, a company owned by farmers, will help us to accelerate our work on improving productivity in the dairy sector. I am convinced that this partnership will create tremendous long term value."


"This is a momentous occasion for us. Engro Foods has enjoyed tremendous success since its inception in 2006 and has become one of the most respected companies in Pakistan," Babur Sultan, CEO of Engro Foods, remarked. "The collaboration with FrieslandCampina will definitely have a big impact on the development of Pakistan's dairy value chain whilst enabling Engro Foods to offer better value to its consumers via an enriched product portfolio as well as strengthening our innovation capabilities. Going forward, I foresee huge advantage out of this partnership for our country, stakeholders, employees, product portfolio and consumers. At the same time, similarities in our strategic direction and corporate culture will create a strong platform for accelerated but sustainable growth for the company."


Headquartered in Karachi, Engro Foods was established in 2006 and has since built a leading position in Pakistan's UHT milk segment, including the Specialized Tea Creaming segment. Engro Corporation owns approximately 87% of the total share capital in Engro Foods while the remaining 13% is listed on the Pakistani Stock Exchange (PSX).


Engro Foods employs about 1,600 people and has annual revenues of about EUR450 million (US$498 million) in 2015. It has a vast network of 1,635 milk collection centres, which collect milk from about 150,000 farmers on a daily basis. The milk, about 300 million litres, is processed in well-run plants located in Sahiwal and Sukkur. In addition, Engro Foods runs its own dairy farm in Nara that produces over 35,000 litres per day with a total herd size of 5,429 animals last year.


The structure of the latest transaction will entail the acquisition of the 51% stake in Engro Foods, to be acquired by a Dutch legal entity controlled by FrieslandCampina. At closing of the transaction, FrieslandCampina will hold approximately 80% of this Dutch legal entity, and IFC and FMO will hold the remaining shares. The estimated total cost for the 51% stake in Engro Foods is EUR420 million (US$464.5 million), depending on final settlement. Engro Corporation, the current majority shareholder in Engro Foods, will continue to remain a shareholder and significant partner in Engro Foods.


FrieslandCampina, through the Dutch legal entity, will make a tender offer to the remaining shareholders of Engro Foods as per regulatory requirements, for at least 50% of the remaining shares of Engro Foods from public shareholders on the Pakistani stock exchange. The actual number of shares purchased in the tender offer will be deducted from the number of shares acquired from Engro Corporation.


The acquisition is subjected to regulatory approval from competition and other relevant authorities.


- FrieslandCampina

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