Arla Foods took a further step in a drive to expand in emerging markets by lodging an outline bid for Egypt-based Arab Dairy Products, opening a potential bidding war against investment group Pioneers Holding.
Danish-based Arla Foods, in a letter to Arab Dairy Products shareholders, proposed a “non-binding” bid of 65 Egyptian pounds per share for the Cairo-based dairy group.
A formal bid is dependent on “satisfactory” due diligence of Arab Dairy Products, and approval by the Arla board, the Danish-based co-operative said.
The interest puts Arla into a potential battle with Pioneers Holdings, a Middle Eastern investment group which investors in sectors from property to finance, and which last month unveiled a bid of 56 Egyptian pounds per share for Arab Dairy Products.
Pioneer Holdings is also one of the top shareholders of Arab Dairy Products, with a stake variously reported at 17-25%.
An Arla Foods spokesperson told Agrimoney.com that the co-operative had not held any talks with Pioneers over winning its approval.
“They have made their proposal. We have made ours. It is up to shareholders, who will have to make their minds up,” the spokesperson said.
However, entry into the Egyptian market would meet Arla aims to expand outside its historic western European markets, where consumption growth is limited, but milk volumes are expected to soar once production quotas are removed next year.
Rasmus Malmbak Kjeldsen, the Arla head for Africa and the Middle East, said that Arab Dairy’s dairy production is based on raw material gained from “recombining” – ie adding water to milk powder.
“Approximately 80% of this milk powder is imported to Egypt,” implying “considerable potential” for using milk supplied by Arla’s 13,500 farm owners in seven north western European countries, he added.
Arab Dairy reported a loss of 3.6m Egyptian pounds last year, compared with earnings of 9.8m Egyptian pounds in 2012, on revenues up 6.7% at 650.6m Egyptian pounds.
Arla last month highlighted the difficulties in a world dairy market which is amidst a “difficult period”, with production trends rising while demand has faded, in the short term at least, with major Chinese importers standing back after building inventories earlier in the year.
“The trends in global raw milk price are pointing downwards fast,” the co-operative said, cutting its forecast for payouts to farmers this year.
However, the group added that an “important” part of its strategy, to grow outside Europe, “is working”, with sales rising by 22% in the Middle East and Africa and 251% in China.
Arla also stressed that it was “entering new markets in Africa where there is a growing demand for healthy and nutritious food” and, in the Middle East, had invested in Saudi Arabia, to support regional sales.
Many other Western dairy groups are also seeking growth through acquisitions in emerging markets with Parmalat, controlled by France’s Lactalis, last week unveiling its second takeover in Brazil in two weeks.