Al Safi Danone Company (ASD), the Saudi Arabian joint venture involving French food giant Danone, is in merger talks with fellow Saudi dairy firm National Agricultural Development Company (Nadec).

Al Safi Danone – a joint venture between Danone and Saudi Arabia’s Al-Faisaliah Group – has entered into an agreement to explore a possible merger with Nadec, which is part-owned by the kingdom’s sovereign wealth fund.

Shareholders of Al Safi Danone will own 38.75% of Nadec at the completion of the proposed transaction, according to a statement to the Saudi stock exchange. 

The companies have signed a non-binding memorandum of understanding.

“The term of the MOU is for a period of six months. The parties have agreed on an exclusivity period during which they will conduct financial, commercial and legal due diligence,” Nadec said in a statement to the exchange, Tadawul.

Under the MoU, Nadec is proposing to buy all shares of ASD and in exchange offer new Nadec shares to ASD’s current shareholders, which will be implemented through a capital increase.

“Subject to confirmation during the due diligence phase, at completion of the proposed transaction, the current ASD shareholders will, in aggregate, own 38.75% of Nadec’s pro forma issued share capital,” Nadec told the exchange.

ASD, which is is engaged in the production of fresh dairy products and juices, was formed by Danone and Al Faisaliah Group Holding in 2000, with Danone holding a 50.1% stake.