German sugar deal threatens Slaska buyout
By : Juliet D. Golden
News of the pending merger between Germany's Sudzucker and France's Saint Louis Sucre (SLS) last week threatened to derail the already dragging privatization of Poland's largest sugar holding, Slaska Spolka Cukrowa (SSC).
At the end of June, the world's largest sugar producer, Sudzucker, announced it had clinched a deal to acquire 99.6% of SLS for E1.6 billion. The takeover of SLS will give Sudzucker a 21.4% share of the European Union's (EU) highly regulated sugar market. In France, SLS is the second largest sugar producer and the company holds almost a 14% stake in Spain's largest sugar producer, Ebro Puleva. Over the past decade, SLS in partnership with the U.K.'s Tate & Lyle has invested heavily in Hungary, the Czech Republic and Slovakia.
While the deal will strengthen Sudzucker's position in Europe, the specter of the German giant conquering up to one-fifth of Poland's sugar market through the backdoor has led to calls for the government to halt SSC's privatization. Sudzucker already holds shares in five Polish mills, mainly in the southeast part of the country. SSC alone commands about 16% of the domestic sugar market.
In November, SLS signed a zl. 600 million ($150 million) agreement with the treasury to acquire 95% of SSC. However, the French have not been able to finalize the transaction due to the Interior Ministry's refusal to sign off on the deal, citing procedural mistakes in SLS's application.
While SLS officials were hoping that the fate of SSC would be settled by mid-July, they said the news of the merger could complicate matters.
"Unfortunately it does (complicate the issue) because some people are talking a lot about it," said Patrice Saintherant, international development director at SLS.
The Sudzucker takeover adds fuel to the fire for some farmers groups, which have been lobbying to include SSC in Polski Cukier, a national sugar holding expected to be formed later this year. Last month the government announced that Polski Cukier would be created from 28 unprivatized mills, excluding SSC's 16 mills. The sale of SSC is hitting a raw nerve due to its location in Silesia, which was part of Germany until the end of World War II.
"It's bad news," said Roman Wierzbicki, chairman of the Solidarity Independent Farmers Trade Union (Solidarnosc RI). "We are not eager about the Germans' expansion here and their takeover of Polish factories. In my opinion, there is a chance to block the sale and that should happen."
The news of the accord between Sudzucker and SLS may have further weakened the ministry's already wavering resolve to finalize the sell-off. Under attack last week by politicians in the countdown to the no-confidence vote against her last Friday, Treasury Minister Aldona Kamela-Sowinska said the change in ownership at SLS may force the treasury to review the deal.
"In view of recent developments, the sale of Slaska should probably be reviewed," Kamela-Sowinska told a parliamentary committee on Tuesday, according to Reuters. "When we made the privatization decision, we didn't know it would be a German company."
However, the minister's comments may have been made under pressure prior to her no-confidence vote Friday. The treasury's press office backpedaled on the minister's statements. Press office officials said the ministry is looking to the Supreme Administrative Court (NSA) to solve the conflict over SSC's privatization. In a session slated for July 12, the NSA is due to rule whether the Interior Ministry was correct in withholding its OK on the privatization deal. A ruling against the ministry will pave the way for Kamela-Sowinska to close the transaction with SLS.
But if the treasury decides to review the deal in light of changes in SLS' shareholder structure, SLS may lose its grip on SSC. Under the agreement signed between SLS and the treasury, the privatization must be completed by July 15.
"Time is against us," Saintherant said.
However, if the fate of other sugar privatizations is any measure, the backing of the NSA and firm ministerial resolve may not be enough to end the impasse over SSC's future. Last week other sugar privatization deals were crumbling under the weight of the controversy surrounding the sugar industry. Despite permission from Kamela-Sowinska on June 27 to move ahead with the sell-off of five mills in a Poznan sugar holding to German investor Pfeiffer und Langen, the privatization was not finalized last week as expected. Contrary to instructions from the government, the holding's president, a Polski Cukier backer, refused to sign the contract.
