FrieslandCampina, the giant Dutch dairy business, has gained a position in central Asia with its acquisition of a majority stake in Engro Foods, Pakistan’s second-biggest dairy company, in what is being described as a “defining moment” for the Pakistan dairy industry.
It has now signed a share purchase agreement with Engro Corporation to acquire 51% of the shares in Engro Foods for EUR420m (US$467.5m). The deal was put together by FrieslandCampina with the help of the World Bank Group’s International Finance Corporation (IFC) and the Dutch development bank FMO. Together they will create a new Dutch legal entity controlled by FrieslandCampina in which it will hold approximately 80% of shares with the remaining 20% split between IFC and FMO.
Pakistan is the third-largest milk producing country in the world with an annual production of 38bn litres of milk. However, less than 10% of milk drunk in Pakistan is processed and sold in packs. Nevertheless, with a growing middle class and demand for higher quality milk the packaged milk market is expected to see huge growth in the coming years.
Roelof Joosten, chief executive of FrieslandCampina, said: “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 buying 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.”
Hussain Dawood, chairman of Engro Corporation, the holding company of Engro Foods, described the deal as “a defining moment for Pakistan”.
He added: “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.”
Babur Sultan, chief executive of Engro Foods, described the deal as “a momentous occasion for us”.
He said: “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. I foresee huge advantage out of this partnership for our country, stakeholders, employees, product portfolio and consumers. Similarities in our strategic direction and corporate culture will create a strong platform for accelerated but sustainable growth for the company.”
Engro Corporation, the current majority shareholder in Engro Foods, will continue to remain a shareholder and significant partner in Engro Foods.