KARACHI: Engro Corporation has finally entered into an agreement with a Netherlands-based dairy cooperative to sell up to 51 per cent shares in its subsidiary Engro Foods at an estimated cost of $448 million.

The transaction has been billed as the single largest private sector foreign direct investment (FDI) in Pakistan in recent years.

The Dutch acquirer FrieslandCampina said on Monday it would partner with the International Finance Corporation (IFC) and the Dutch development bank FMO in the share-purchase agreement (SPA).

Earlier on March 3, FrieslandCampina announced that it intended to acquire up to 51pc of voting shares of Engro Foods in line with local takeover laws.

Engro Corporation affirmed on Monday that it would remain a significant partner and shareholder under the new company structure.

Citibank, the financial adviser, said on Monday that FrieslandCampina planned to undertake acquisition directly and/or through a special-purpose vehicle (SPV). Subject to completion of public tender offer and relevant procedure under the law, IFC and FMO would acquire an equity interest in the SPV, resulting in FrieslandCampina holding around 80pc of SPV’s equity.

FrieslandCampina affirmed that it would make a tender offer to the remaining shareholders of Engro Foods from public shareholders. The actual number of shares purchased in the tender offer will be deducted from the number of shares acquired from Engro Corporation.

Analysts at Topline Securities said the sale price under the SPA has been agreed on a cash-free, debt-free basis with an enterprise value of $933m to be adjusted for certain items including debt-like items, cash and cash equivalents and working capital.

The sale price as of this announcement is estimated at around $448m (Rs120 per share). The final sale price will be calculated within 40 business days of closing after preparation of the closing statements. The analysts said that although the acquisition price of Rs120 per share was at 26pc discount to last closing, the discount was scarcely surprising for the market.

The sale is expected to result in a one-time cash flow impact of Rs90 per share (at deal price of Rs120 per share). “Engro Corporation will generate cash of around Rs47bn,” analysts calculated.

FrieslandCampina said in a statement on Monday that the acquisition of Engro Foods would enable it 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.”

The proposed buyer 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.

Hussain Dawood, the chairman of Engro Corporation, commented: “The partnership enables us to provide a wider array of affordable high-quality dairy products for a healthier Pakistan, especially of its younger population.”

Published in Dawn, July 5th, 2016