Cargills’ cheer in CSE

*Buys 73% stake in Kotmale Holdings for Rs. 900 m as part of aggressive expansion and diversification in FMCG industry

*Deals involving the two account for near 50% or Rs. 1.3 b of market turnover

*Takeovers Code triggered whilst Kotmale gets price band slapped with 37.6% up yesterday and over 54% rise during past 5 days; Analysts skeptical about formula on takeover stocks as it kills post-acquisition sentiments

Post-war bullish Cargills (Ceylon) Plc yesterday literally went shopping at the Colombo bourse buying up 73% stake in Kotmale Holdings Plc for around Rs. 900 million triggering the Takeovers and Mergers Code whilst deals on the two boosted an otherwise bearish market.

The acquisition is part of Cargills accelerated expansion and diversification in the Fast Moving Consumer Goods (FMCG) industry.

Founded by the Schaffter family about 30 years ago, Kotmale at present collects over 12 million litres of fresh milk per annum and the buy includes three production plants under Kotmale Holdings in Bogawawatte, Kalutara and Colombo.

Cargills paid the highest price of Rs. 40 per share in picking up 21.63 million shares via three crossings and bought a further 1.4 million shares outside at prices slightly below. In total 25.67 million shares or 81.7% stake of Kotmale traded for Rs. 1.015 billion. The acquisition triggered fresh investor sentiment and interest on Cargills which saw 1.6 million of its shares traded for Rs. 322 million. Of that a crossing of 1.5 million shares were done as a crossing at Rs. 200 each with buyer being foreign. Cargills closed the day Rs. 194, up Rs. 13.20 or 7.3%. Schaffter family controlled Dunamis Capital which sold 31.4% along with First Capital (29.9%) saw its share price gain 19% to close at Rs. 15.60. Dunamis has got a capital gain of approximately Rs.290 mn from the sale. First Capital rose by 7% to Rs. 19.10.

Kotmale hit an all time high of Rs. 42 before closing at Rs. 39.90, up 37.6% or Rs. 10.90. Unfortunately Kotmale also got caught to the undisclosed formula of SEC-CSE and a 10% price band was slapped from tomorrow. Five market days ago Kotmale was trading between Rs. 25.80 and Rs. 26 and as per yesterday’s closing the gain was over 54%.

Some analysts were skeptical over the price band formulae affecting takeover stocks and noted slapping a band kills post acquisition sentiments. Prior to yesterday’s peak, Kotmale’s highest was Rs. 29.90.

Analysts also said that post Cargills acquisition Kotmale holds significant promise and upside. The Company has said it make a mandatory offer to buy remaining shareholding in Kotmale. It has around 1,400 shareholders.

Cargills said the acquisition consolidates its interest in the dairy industry enabling the

Company to enhance its dairy product range which is currently spearheaded by Cargills Magic, Sri Lanka’s No. 1 dairy ice cream.

“This would also provide Cargills the opportunity to expand its dairy out-grower base from its present network of 5,000 and thereby further empower the local dairy industry,” Cargills added.

Since its entry into the food manufacturing business over two decades ago, Cargills has enjoyed exceptional levels of growth in its FMCG businesses. All Cargills manufacturing brands, Cargills Magic, Cargills Finest, Cargills Supremo and Cargills Kist are established market leaders being responsible for driving industry growth through an innovation driven strategy.

Cargills is of the view that the anticipated double digit economic growth in the medium term and the consequent growth in per capita income and change in lifestyles provide vast opportunities for the FMCG business. The Company is therefore looking to further diversify its businesses in line with its core business interests. The acquisition of Kotmale Holdings Plc comes in the wake of these identified opportunities and potential for sustainable long term growth.

Analysts said that Kotmale was up for sale a few years ago and several looked at it including Cargills and Ceylon Cold Stores, with both having interest in the dairy business or connected to it. Daily FT learns agriculture savvy CIC had recently looked at Kotmale as well whilst yesterday’s deal was concluded within hours. Some termed it as “out of the blues” whilst analysts also noted that Cargills acquired it for the brand value of Kotmale and Schaffter family got an attractive price as the timing was far better than two years ago.