In a significant development within the Middle East’s corporate landscape, Saudi Arabia’s Savola Group, a prominent food processor, is actively exploring options to divest its substantial 35% stake in Almarai Co., the largest dairy company in the region, with an estimated value of $5.4 billion as per recent trading figures. This move is poised to become one of the most significant merger and acquisition deals within the Middle East.

Market Reaction and Collaboration with Moelis & Co.

Following reports of this potential stake sale, Savola’s stock witnessed a nearly 10% surge, representing its most substantial increase since March 2020. Conversely, Almarai’s stock experienced a dip of over 2%, reaching its lowest level since June.

Savola Group has enlisted the services of US-based investment bank Moelis & Co. to explore various strategic options related to its Almarai stake. While the talks are still in their early stages, it is worth noting that Savola may ultimately decide not to proceed with the sale. Both Savola and Almarai have refrained from making official comments at this time. Moelis & Co. also declined to provide any comments on the matter.

Stake’s Value and Savola’s History

Based on recent trading data, Savola’s stake in Almarai is valued at approximately $5.4 billion, a sum that is slightly higher than Savola’s own market capitalization, which stands at roughly $5 billion. It’s essential to highlight that Saudi Arabia’s Public Investment Fund holds a 16% stake in Almarai through one of its subsidiaries.

Savola’s history involves previous divestments, including the sale of a 2% stake in Almarai in 2017, characterized as part of a broader capital reallocation strategy. Furthermore, in the preceding year, Savola also divested from Knowledge Economic City and its Moroccan unit.

Savola’s Strategic Focus

In their 2022 annual report, Savola’s Chief Executive Officer, Waleed Khalid Fatani, emphasized the company’s strategy of exiting non-core sectors. This strategic shift enabled Savola to concentrate on enhancing and expanding its core operations, both within Saudi Arabia and abroad. Savola primarily invests in the food and retail sectors while also maintaining interests in venture capital and private equity.

Recent noteworthy activities by Savola include a deal in 2021 to acquire the United Arab Emirates’ Bayara Holding for $260 million. In the subsequent year, the company expanded its footprint by purchasing bakery assets in Egypt, a significant market for the firm.

Almarai’s Evolution

Almarai Co., initially established in the 1970s as a dairy company, has evolved significantly over the years. While its origins lie in dairy production, the company has diversified its portfolio to include bakery products and poultry, reflecting the changing consumer preferences and market dynamics in the Middle East.