The agreement between NestlT and F&N was announced on Monday. F&N will buy outright the Tea Pot trademark and license the Milkmaid, Ideal, Cap Junjung and Carnation trademarks for evaporated milk, sweetened condensed milk, sweetened beverage creamer and evaporated creamer in Malaysia, Singapore and Brunei. In Thailand, the F&N group will license the Carnation, Milkmaid and Bear brands and buy all of NestlT's dairy and juice production facilities and equipment.
The licenses will be for an initial period of five years with an option to extend for another five and are subject to royalty. To ensure a smooth transition, F&N will retain NestlT as a distribution agent for an agreed period of three years. As part of the transaction, F&N will also buy NestlTÆs 25% stake in joint venture company, Premier Milk, making it a 100% subsidiary of F&N.
In a statement, NestlT suggested the divestiture is part of a portfolio-optimisation strategy intended to allow it to enhance focus on other product categories, in line with the companyÆs global strategic direction. It also said the sale would affect turnover but not net profit.
Managing director of NestlT Malaysia, Sullivan OÆCarroll, says the deal would strengthen NestlTÆs operations in Malaysia, Singapore and Brunei and provide the company with greater momentum for a stronger presence in the region by allowing it to focus on other value adding categories that offer new prospects and opportunities. "This business model will also ensure that consumers will continue to enjoy their favourite brands of liquid milks in the manner they have been accustomed to,ö he says. "Fraser & Neave is a strong regional player that can leverage these product categories, at a cost structure comparable with other local and regional players.ö
Fraser & Neave Holdings is listed in Malaysia and has businesses in soft drinks, dairy products and glass packaging. For the 12 months ending September 2005, it earned a turnover of M$1.9 billion. In the past F&N has contract-manufactured for NestlT . NestlT is also a customer of F&NÆs glass packaging division. F&N's chief executive officer, Tan Ang Meng, says: ôNestlT's decision to collaborate with F&N speaks volumes for the mutual trust and confidence that spans decades and enables us to focus on our respective strengths.ö
MengÆs buy-in to the transaction was corroborated in his statement. "In one stroke we have gained access to a large population base and reduced our dependence on the relatively small Malaysian market, which augurs well for the future of F&N.ö
The transaction cements F&NÆs position in the dairy industry in Malaysia and is expected to provide economies of scale. The company says the deal will ôincrease the dairy divisionÆs annual turnover of M$600 million to more than M$1.5 billionö. It also provides an entry into Thailand and the ôrelatively untapped markets of Indochina and Myanmarö.
CIMB Investment Bank advised on the transaction.
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