C.P. Pokphand Co. Ltd, China’s leading provider of animal nutrition solutions in the food industry, is to acquire from a wholly-owned subsidiary of Charoen Pokphand Group Company Limited (CPG), its majority shareholder, a 70.82% interest in C.P. Vietnam Livestock Corporation (CPVL), a leading integrated livestock and aquaculture company in Vietnam, for a total consideration of approximately US$609 million, representing a multiple of 12.5 times CPVL’s 2010 audited net profit attributable to the Group after adjusting for the technical assistance service fee that would have been paid by CPVL if the current arrangements had been in place and the Company had completed the acquisition in 2010.
As one of the largest corporate acquisitions in Vietnam, the deal represents a unique opportunity for CPP to acquire a controlling stake in a market leader and expand into one of the fastest growing feed and farming markets in Southeast Asia. The acquisition not only enables the Group to broaden and diversify its business base, but also is expected to be accretive to CPP’s earnings per share immediately.
Established in Vietnam in 1993, CPVL’s integrated livestock and aquaculture businesses span the entire food production value chain, from the manufacturing and distribution of animal feed, to breeding and farming of livestock and aquatic animals, as well as processing and production of meat and food products. CPVL commands a leading position with approximately 20% of commercial feed market , 77% of industrial swine farming markets and 30% of broiler farming markets in Vietnam. For the year ended 2010, CPVL recorded an audited total revenue and net profit of VND20,077,880 million (approximately US$1,046.5 million) and VND964,584 million (approximately US$50.3 million), respectively.
Vietnam’s strong demand for meat and seafood products is driven by its young and expanding population, with a median age of 28. The country is also a major exporter of seafood in Asia. Capitalizing on this favorable environment, Vietnam’s commercial feed market has been growing strongly, enjoying a compound annual growth rate (CAGR) of approximately 16% between 2005 and 2009, and strong growth is expected to continue in the coming years.
Industrial farming is also growing faster, driven by a structural shift to large scale production through scientific farming. Industrial production of poultry and swine in Vietnam registered a robust CAGR of approximately 22% and 24%, respectively, between 2005 and 2009.
CPVL currently has four livestock feed mills with a total capacity of approximately 2.26 million tons per year and three aquatic feed mills with a combined capacity of approximately 0.61 million tons per year. The Group expects the acquisition of CPVL’s feed operations in Vietnam to be synergistic with the Group’s existing 78 feed mills in China by enhancement in its economies of scale in raw material procurement.
Mr. Dhanin Chearavanont, Chairman and Executive Director of CPP said, “This strategic acquisition will immediately position CPP as the leader in the commercial feed and industrial farming market of Vietnam. We expect the fast growing business in Vietnam to become a key growth driver and to contribute to a broader and more diversified income base for the Group going forward. We are confident that this, together with our leading business presence in China, will move CPP closer to our goal of becoming a significant player in Asia’s promising agri-food market. “
With 78 feed mills across 28 provinces and municipalities in China, CPP has the most far-reaching geographical coverage in China’s domestic feed industry. CPP’s feed brand, “Chia Tai”, enjoys high recognition in China’s feed market with a track record of 30 years’ operational excellence.