Mezzan (MEZZ.KW) is finalising negotiations to set up a joint venture with Saudi Arabia’s Al Faisaliah Group that will allow Mezzan to manufacture and market pastries and snacks in Saudi Arabia. Mezzan will inject KWD7.0-7.7mn (cUSD23-26mn) via a capital increase in Al Safi Food Co. granting it a 70% stake in the company and diluting Al Faisaliah to a 30% stake. Mezzan anticipates that the deal should be closed within six to eight weeks. Al Safi Food is a new company that produces and sells baked snacks (croissant, etc.) in KSA. The JV will leverage Mezzan’s know-how in the snacks market, allowing the company to expand its brand portfolio into other snack categories like potato chips (Mezzan is the market leader in Kuwait and is gaining strong market share in the UAE). New products will likely be launched under Mezzan’s own brand names (such as Nice, Kettle Cooked chips, etc.).   Expansion into Saudi is a key catalyst for Mezzan as KSA has been a target market for the company (only has minimal exports there at the moment) as part of its geographic diversification strategy (Kuwait was 66% of revenue in 2015 down from 85% in 2013 aided by expansions in the UAE and Qatar). Mezzan’s track record for acquisitions has so far been solid with the most recent being UAE’s UMG, the country’s Red Bull distributor, in 2014 that was bought at low-single-digit multiples. We are positive on the news especially as the company is venturing into the competitive Saudi market with a strong local partner who have good knowledge of the market and solid distribution capabilities. However, it is hard to assess how much value accretive the JV will be at this stage as details are limited until the deal is concluded. Until more information is disclosed on the impending deal, we maintain our Neutral rating on Mezzan as we believe current valuation (c19x 2016e P/E, in line with regional peers) adequately reflects its growth prospects (2016-17e EPS CAGR: 12%). (Company Disclosure, Nada Amin, Hatem Alaa)