April 25, 2016

Saudi Arabia’s Almarai Group has announced its intention to acquire a majority stake in National Food Products Company (NFPC) of the United Arab Emirates in a deal that could be worth US$1.5 billion. NFPC has invited Almarai to begin a process of due diligence on the potential acquisition which would give Almarai the ability to expand into the UAE market at a time when domestic growth in Saudi Arabia is slowing as oil revenue dries up.

In May 2015, the board of Almarai approved a five year, $5.6 billion capital investment plan for 2016-2020 that would fund expansion for the gulf region’s largest dairy firm into the fields of farming, manufacturing, distribution, and logistics reports Reuters.

NFPC is one of the UAE’s largest food and beverage companies and if acquired, will increase integration for Almari adding water and packaging production facilities to Almarai’s business. NFPC would also bring with it brands including Milco, Lacnor, Oasis water, a joint venture with European diary giant, Arla, and a new factory being constructed in Abu Dhabi according to Food Navigator.

Almarai has been looking outward recently, investing in foreign agricultural and food opportunities as new regulations in Saudi Arabia resulting in higher electricity, water, and fuel costs, as well as new restrictions on the domestic production of fodder, have left the group with flat earnings. In January of this year the group announced that it acquired 1,790 acres of California farmland for $31.8 million in order to secure a reliable supply of alfalfa hay for its dairy business.

“Additionally, [Almarai’s] poultry division is no longer on track to meet its break-even target for 2016 given intense pressure from cheaper frozen Brazilian competition, reflecting a shift in consumption patterns,” Nada Amin, an analyst with EFG Hermes in Egypt told The National. “If dairy companies are allowed to raise fresh milk prices, a move that most companies have been pushing for given that the last increase was in 2008, this could considerably mitigate cost pressures.”