June
2000
Dhan Fibres Limited
Financial Advisor on the Largest Private Sector Acquisition in Pakistan's
History
The acquisition of Dhan Fibres by Dewan Salman Fibres has made imminent sense for a number of years. As the two largest polyester staple fibre manufacturers in Pakistan, the companies operate 51% of Pakistan's installed capacity at adjacent facilities. Realizing the potential for substantial cost savings and operating synergies from a combination of these operations, the two companies had tried to effect a transaction on their own. However the local banking sector lacked the liquidity to finance a transaction of the required size. Furthermore, certain legal hurdles 'that would remain until the completion of pending takeover legislation in Pakistan' made it technically impossible for the two parties to work out a feasible transaction structure.
AKD Securities corporate finance professionals, intimately familiar with the operations and management of both companies, identified this as an ideal opportunity to kick-start the nascent merger and acquisition market in Pakistan. To facilitate the transaction while complying with Pakistani corporate laws in their existing form, AKD assembled a group of third party investors willing to put up a substantial amount of arbitrage risk capital to facilitate a transaction. AKD acted as a broker on behalf of these investors to accumulate a large position in Dhan Fibre's stock from the market.
AKD then approached the sponsors of both firms to help negotiate a transaction on mutually agreeable terms. After several weeks of intense negotiations the parties agreed upon a transaction structure. Dhan's sponsors, the Chakwal Group, and the investor group would simultaneously sell their combined 67% of Dhan Fibre's stock to Dewan Salman for a total of Rs. 4.2 billion.
Pakistan's largest banks could only finance part of the acquisition cost and AKD helped Dewan Salman raise the necessary funds through a private placement of TFC's worth Rs. 1.6 billion.
Following the approval of the plan to merge Dhan Fibres with and into Dewan Salman, currently pending before the Lahore High Court, the combined company will be able to realize substantial cost savings and synergies in administrative expenses and raw materials procurement. Considering the positive impact of this combination on Pakistan's textile industry, which accounts for almost 59% of Pakistan's exports and purchases all of the polyester fibre manufactured in Pakistan, the transaction won the approval and encouragement of Government authorities.