Saudi Savola Buys Stake in PepsiCo Partner Almarai

Savola Group (SAVOLA), the Saudi Arabian retail group with interests from sugar to supermarkets, said it paid 2 billion riyals ($533 million) to boost its stake in PepsiCo Inc. (PEP) partner Almarai Co. as it expands in the kingdom.

Savola increased its shareholding to 36.52 percent from 29.95 percent, the Jeddah, Saudi Arabia-based company said in a statement to the stock market today. The deal was financed by a combination of cash on hand and Islamic banking facilities from the local banks. Samba Capital was financial consultant.

Savola is expanding its retail business in the Arab world’s largest economy and its sugar refining operations in Egypt as it seeks to boost revenue. The company acquired the assets of Casino Guichard-Perrachon SA (CO)’s Geant superstores in the kingdom and also bought Tate & Lyle Plc’s (TATE) stakes in sugar refineries in Saudi Arabia and Egypt earlier this year.

The acquisition “is in line with the group’s strategy of further growing its exposure in its core sectors, and the food sector is one of them,” Savola Managing Director Abdul Raouf Mannaa said in the statement. The company increased its holding in Almarai to 29.95 percent from 26.5 percent during 2010.

Savola bought 26.2 million shares at 75 riyals a share, according to NCB Capital. “This increase of its stake in a key strategic partner is a positive, strengthening its position as the leading food companies in Saudi Arabia,” NCB Capital said.

Higher Profit

The company reported a 32 percent increase in third-quarter profit, beating analysts’ estimates. In contrast, Almarai revised its 2012 profit forecast to 7 percent from as much as 10 percent as third-quarter earnings missed analysts’ estimates.

“For Savola, this means they become more integrated,” Asim Bukhtiar, head of research at Riyad Capital, said of the Almarai purchase. “We are not too bullish on Almarai at least over the next 12 months. We see headwinds for Almarai specifically in terms of their salary and debt increases.”

Almarai and PepsiCo jointly operate International Dairy and Juice in the kingdom.

Savola gained as much as 6.1 percent to 39.90 riyals and was trading at 38.90 riyals at 12:11 p.m. local time. Almarai fell 0.7 percent to 69.25 riyals.

To contact the reporters on this story: Shaji Mathew in Dubai at shajimathew@bloomberg.net; Glen Carey in Riyadh at gcarey8@bloomberg.net

To contact the editor responsible for this story: Riad Hamade at rhamade@bloomberg.net

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