CP Pokphand (CPP), a Chinese provider of animal nutrition solutions in the food industry, will acquire a 70.82% interest in CP Vietnam Livestock Corporation (CPVL), a leading integrated livestock and aquaculture company in Vietnam.
CPP will acquire the interest from the Bangkok, Thailand-based Charoen Pokphand Group (CPG), its majority shareholder, for about HK$4,735 million (US$609 million).
CPP is the investment arm in China of this same Charoen Pokphand Group, and is known in China as ‘Chia Tai’, CPP and its subsidiaries have been investing and working in China since the country first opened its doors to foreign investment in the late 1970s.
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 South East Asia. The acquisition enables CPP to broaden and diversify its business base.
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 (US$1,046.5 million) and VND964,584 million (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. Capitalising 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.
Meanwhile, CPVL’s feed production, poultry and swine farming businesses achieved revenue CAGRs of 28%, 34% and 44% respectively between 2005 and 2009, consistently outperforming the market.
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. CPP expects the acquisition of CPVL’s feed operations in Vietnam to be synergistic with the CPP’s existing 78 feed mills in China by enhancement in its economies of scale in raw material procurement.
Positioning as leader
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.”