National Agricultural Development Company (Nadec), the Saudi dairy producer part-owned by the kingdom’s sovereign wealth fund, plans to start talks with Danone SA’s venture in the country for a potential combination.

Shareholders of the privately-held Al Safi Danone will own 38.75 per cent of National Agricultural Development Co. at the completion of the proposed transaction, according to a statement to the Saudi stock exchange. The companies signed a six-month non-binding MoU to conduct financial, commercial and legal due diligence.

The merger plan follows banking and insurance companies in Saudi Arabia starting talks on potential combinations. HSBC Holdings Plc and Royal Bank of Scotland Group PLC’s ventures in the kingdom are exploring a potential merger, while at least four insurance companies said earlier this year that they are studying plans for the same.

The food industry has also been rife with mergers and acquisitions lately. Last month, Danone bought a stake in Yooji, a French maker of frozen organic baby food. Also in September, Nestle SA bought Sweet Earth, a maker of frozen meals and chilled, plant-based burgers, while Unilever purchased Pukka Herbs, a rapidly expanding organic tea company.

Paris-based Danone and Saudi Arabia’s Al Faisaliah Group Holding formed Al Safi Danone in 2000, with the French yoghurt maker holding a 50.1 per cent stake.

National Agricultural Development shares climbed as much as 6.6 per cent in Riyadh on Sunday, taking its gain this year to 36 per cent. The company has a market capitalisation of about $700 million.