KARACHI: Engro Corporation Limited is all set to sell its majority holding in its food subsidiary, Engro Foods, to a Dutch company for a price that could fall in the vicinity of Rs46 billion ($460 million), calculated on the current market price of Rs136 per share.

The fertiliser-to-food conglomerate, one of the biggest companies listed on the Pakistan Stock Exchange (PSX), has received a public announcement of intention to acquire up to 51pc shareholding in Engro Foods Limited.

The potential acquirer has been identified as dairy co-operative FrieslandCampina International Holding BV.

Engro Foods in a separate filing with the stock exchange stated that due diligence may commence shortly.

Engro Corporation holds 667m shares, representing 87.06pc of the 767m issued shares of Engro Foods, which has a free-float of 13pc (99.7m shares).

Following the sale of intended shares to the Dutch firm, the local parent’s stake in Engro Foods would be reduced to 277m shares. Analysts reckoned that Engro Corporation’s decision to sell off majority stake in Engro Foods was in line with the company’s strategy to balance its exposure, which is tilted towards consumer and fertiliser at the moment.

Engro Corporation is expected to utilise the funds to finance its investment in coal projects, including Sindh Engro Coal Mining Company (SECMC) and EngroPowergen Thar (Private) Limited.

The potential acquirer intends to buy out 391m shares of the target company including the public offer. Hence, the acquirer has to purchase at least 50pc of the remaining shares (188m shares) from the minority shareholders.

The news of the potential sell-off was therefore well received at the stock market on Thursday, where prices of both parent and subsidiary companies’ stocks scurried to their ‘upper circuits’ representing 5pc addition to the overnight value.

As per regulations, the acquirer would have to make a public offer at a price which is higher of acquisition price, or last four-week price preceding date of public announcement of intention to buy or the six-month average price preceding date of announcement of public offer.

The corporate filings with the stock exchange on Thursday stated that the acquisition may be done by the acquirer directly or through a special-purpose company. Engro Corporation has appointed Citibank NA Pakistan as the manager to the offer.

Published in Dawn, March 4th, 2016