Fauji Foods aims to keep at least 25% shares

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VIAShahram Haq
SOURCEThe Express Tribune
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LAHORE:  Fauji Foods Limited, a sister concern of the Fauji Group, is looking to keep at least 25% shares in a forthcoming deal with Chinese food giant Inner Mongolia Yili Industrial Group.

Fauji Fertiliser Bin Qasim Limited (FFBL) officials said talks between the two sides for acquisition of up to 51% voting shares and control of Fauji Foods by the Yili Group are now at the advanced stage. However, Fauji Foods aspires to keep 25-35% shareholding in a bid to stay engaged in the dairy business both in domestic and export markets.

Also Read: Fauji Cement’s profit jumps 31% in FY18

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“Business models, based on joint ventures, are becoming successful globally and we also want a joint venture with the Yili Group through this acquisition,” said FFBL Company Secretary Syed Mujtaba Tirmizi while talking to The Express Tribune.

He revealed that the Chinese company wanted a significant shareholding in Fauji Foods, adding “we also believe in long-term partnerships”.

“This will be the biggest foreign investment in recent times in Pakistan; though Yili will have majority shares in the company, we will still make a great impact with our remaining shares,” Tirmizi added.

The Fauji Group had acquired the food company by purchasing 51% shares from the Noon Group in September 2015 for Rs700 million. Total shares acquired by the Fauji Group now stand at 63.34%.

The Noon Group still has 11% stake in Fauji Foods. Company executives believe Yili will also have to buy shares from the open market (different funds) to get controlling rights in the company. This, they said, would merely leave around 10% shares in the open market.

Fauji Foods has made an additional investment of Rs12 billion for equity and plant upgrade, which may have helped generate Rs6 billion in first three quarters of the current calendar year.

The Yili Group is the largest dairy producer in Asia and the eighth largest across the world. The Chinese company is principally engaged in the processing, production and distribution of Halal dairy products and mixed feedstuff.

Its market capitalisation as of December 2017 was 210 billion Chinese yuan or $30.3 billion, with annual sales of $8.66 billion. Yili expressed interest in acquiring up to 51% shares in Fauji Foods from FFBL and other shareholders in July this year.Last month, a high-level delegation from the Chinese company, led by its strategy head, visited Pakistan. It conducted a market survey by visiting milk plants, urban markets, farmers, etc to see what Pakistan market could offer.

China’s Yili Group expresses intent to acquire Fauji Foods

Similarly, a high-powered delegation of FFBL will visit China at the end of October whereas in mid-November Yili’s top management will come to Pakistan for meetings to discuss the future and modalities of the transaction.

Future strategy

The Yili Group has global expertise and a research and development wing. The company wants to establish dairy farms for future expansion to feed its growing supply chain.

Fauji Foods is looking to take advantage of Chinese expertise, which will help it remain competitive in the presence of two multinational food giants – Nestle and Engro Foods (Frieslandcampina Pakistan).

Tirmizi said through the acquisition, they found a bigger scope. “Pakistan’s domestic market is still open as 90% of the market has to shift to UHT milk by 2021. It is a big market with the Middle East as a potential export market of dairy foods from Pakistan.”

“We as a company will go for better business practices after the acquisition,” he added. 

Published in The Express Tribune, October 21st, 2018.

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