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Savola Group is looking to grow by offloading dairy giant Almarai, raising SAR 6 bn in fresh capital, and exploring the possible IPO of Panda, its consumer retail arm. The food and retail investment group made the blockbuster announcement in a Tadawul disclosure and press release (pdf) yesterday. It also unveiled a website to explain the transaction.
Savola Group plans to offload its full 34.5% stake in Almarai, the region’s largest dairy outfit. It is Almarai’s biggest shareholder, followed by the Public Investment Fund, which holds a 16% stake through one of its units.
The divestment of Almarai will be a three-step process requiring regulatory approvals and shareholder votes at each turn. It wants to first raise SAR 6 bn through a rights issue to existing shareholders, then reduce its capital before distributing its Almarai shares to shareholders. In simpler terms: “You give me SAR 6 bn, then I’ll give you my stake in Almarai.”
Savola is careful to point out that Almarai “has been one of the most successful investments for Savola Group to date.” It says the value of its investment in the dairy giant is up more than 100x since it invested back in 1991.
Savola wants to “unlock value” — it doesn’t think the market fairly values what it does or what Almarai does, writing in an FAQ that “over the past years, Savola’s market capitalization is approximately equal to the market value of its stake in Almarai.”For folks who like Almarai’s story, it’s a way to get direct exposure. And if you like Savola, buying Savola stock gives you direct exposure to its future growth prospects and starts to do away with the so-called “holding company discount.”
What are those growth prospects? Savola is being cautious, but says it will use the proceeds from the rights issue to pay down debt and “invest in the growth of its portfolio companies.” Savola says that it doesn’t need the transaction to go through to meet its debt obligations. Look for it to deleverage before taking on fresh cash at optimized terms to fund its growth going forward.
Why should you like Savola shares after it sheds Almarai? The group is nicely diversified with FMCG operations across Saudi, the Middle East, North Africa and Turkey — and it’s looking to grow both organically and through M&A. It distributes food across 50 countries and has a portfolio of investments spanning consumer foods and retail (Panda and Herfy) as well as real estate, venture capital, and other sectors.
WHAT THEY SAID: Savola Group Chairman Sulaiman Al-Muhaidib said, “This unique transaction comes at an exciting moment in our four-decade history … The distribution of our stake in Almarai will provide our shareholders with direct exposure to one of the region’s most loved and trusted food brands. Going forward, we will focus on investing in the growth of our core food and retail businesses, while continuing to review strategic options to realize value from portfolio companies that demonstrate attractive distribution and monetization potential.”
AND- Savola reported strong growth in profitability for FY 2023. We have the story in this morning’s Earnings Watch, below.
PANDA IPO?
AND- Savola is separately exploring the potential IPO of retailer Panda, saying the company has shown a “healthy recovery in profitability” after a recent store overhaul. Panda is now looking to grow both its brick-and-mortar and digital sales footprints. Panda is the largest grocery retailer in the Kingdom, operating supermarkets, hypermarkets, and distribution centers. It serves over 95 mn customers per year, according to its website.
Market reax:Savola’s share price fell 3.9% to SAR 46.20 apiece on yesterday’s close, whileAlmarai’s share price declined 1% to SAR 59.00 per share.
Background: Savola said in October 2023 that it has hired Moelis & Co. to advise on the prospects of selling its share in Almarai.
