The share price of Charoen Pokphand Foods Public Company Limited (CPF) rose ฿0.50/share or 1.96% to ฿26.00/share with a trading value of 438 million baht.
The rise in share price came after the company announced that the acquisition of swine business in China by Chia Tai Investment Co., Ltd. (CTI), has been approved by shareholders’ meeting of both CPF and C.P. Pokphand Co., Ltd. (CPP) on October 27, 2020 and November 2, 2020, respectively.
It is expected that the acquisition of the swine business in China by CTI will be completed within 2020.
In September, CPF stated that the company would propose to its shareholders for approval for its subsidiary in China to acquire 43 companies in the swine business through the issuing of new shares as payment to the seller.
Chia Tai Investment Co., Ltd (CTI), which its main business involves feed manufacturing and distribution in China and also an indirect subsidiary of CPF via C.P. Pokphand Co., Ltd (CPP), a listed company in Hong Kong Stock Exchange. The proposal will facilitate the integration of its feed production in China with the swine business which is now managed by Chia Tai Animal Husbandry Investment (Beijing) Co., Ltd. (Seller), a subsidiary of Charoen Pokphand Group.
This proposed deal resulted in the acquisition of 43 companies of Chia Tai Animal Husbandry Investment (Beijing) worth 28.14 billion RMB (4.109 billion US dollars or 131.287 billion baht). CTI will issue new shares as payment to the seller without financial burdens.
CPF believed that entering into this business will create business opportunities for CTI by penetrating more swine business with high growth potential like China. It is also a vertical integration of CTI to achieve integrated swine business from feed, farm and slaughter, throughout processing. This strategy will encourage the company’s efficiency to serve well with market changes as well as to combine expertise in its value chain, which is the accomplishment of the business integration and more facilitate business expansion.
If successful, it will allow CTI to gain higher profits from the swine business expansion thanks to the lucrative pork price. Moreover, the deal will encourage the company to have higher efficiency cost and business management to benefit its further investment in the long run.
Mr. Prasit Boondoungprasert, chief executive officer of CPF, said that the acquisition marks a great opportunity to penetrate the Chinese swine market, which constitutes the biggest chunk of the global industry’s value. China is the world’s most populous country and demand for pork products is high and continually increasing. Following the African Swine Flu (ASF) outbreak in China 3 years ago, vaccination is not yet available. As such, pig farms’ measures against environmental impacts, healthy piglets, and biosafety measures will be a good success factor for this business in China, and these have been CPF’s emphasis.
CPF’s pig business currently covers 7 countries – Thailand, Vietnam, Cambodia, Malaysia, the Philippines, Russia and Canada. The investment in the last 3 countries has just started recently. Minor shareholders’ approval on the acquisition in China will make CPF a leading swine business operator in the world.