Recently, reported in The Edge Malaysia(16/10/06), is a relatively small M&A where one party (Nestle) announced that it is divesting its non-core product area and for operational efficiency and the other party (F&N) believe it is acquiring much synergies/benefits from this proposed deal.

The proposed deal:

Fraser & Neave Holdings Bhd (F&N) plans to acquire the Nestle group’s liquid milk products businesses and assets in Thailand as well as the latter’s “Tea Pot” brand in the region in a RM310 million deal that will boost its presence in the region.

For F&N:

According to its CEO Tan Ang Meng , the synergies from this deal are:

• the acquisitions of the liquid milk products business would boost F&N’s dairies annual turnover to more than RM1.5 billion from RM600 million;

• F&N will assume control of Nestle’s canned liquid milk, UHT and chilled dairy and juice business in Thailand, hence gaining access to the large Thai and untapped Myanmar and Indochina markets. Nestle has leading positions in the condensed, evaporated and sterilised milk markets in Thailand via the Carnation, Milkmaid and Bear brands;

• As part of the deal, these brands will be licensed to F&N. F&N will also acquire the relevant Nestle production facilities in Thailand from Nestle (Thai) Ltd and Nestle Dairy (Thailand) Ltd;

• In Malaysia, Singapore and Brunei, Nestle will also license F&N to manufacture and distribute Nestle’s “Ideal, Carnation and Milkmaid” brands. The agreement also includes F&N paying royalties to Nestle in these countries;

• F&N gained access to a large population base and reduced our dependence on the relatively small Malaysian market

• Enables consolidation of the canned milk category and brings economies of scale to the manufacturing operations during a period of escalating costs of packaging and raw materials such as skim milk powder and sugar.

As for Nestle, by divesting the aforesaid would would enable it to focus further on growing its other product categories, driving innovation and renovation and also offer its consumers new products. Nestle said the transaction would affect Nestle (Malaysia) Bhd’s turnover in the short term but not its net profit. It expects the move to also increase its operational efficiency.

The deal was scheduled to take effect on Feb 1, 2007. F&N will retain Nestle’s services in Malaysia and Singapore to continue the present distribution arrangements for three years.

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