Sokolow, Farm Food on road to merger
Management teams at leading meat producers Farm Food and Sokolow are scurrying to put final touches on a merger plan before supervisory board meetings next month.
Supervisory board approvals from both companies would pave the way for shareholders to accept the merger strategy in January.
"If the supervisory boards give a positive opinion, then automatically the (proposal) will be directed to the shareholders meeting at the beginning of the year and then we will move full steam ahead with the merger," said Janusz Jastrzebski, deputy president in charge of finance at Farm Food, the nation's No. 2 meat company. Jastrzebski also serves on the supervisory board of Sokolow.
"I would like to emphasize very firmly that this must be accepted at all levels of the company," he said. "Right now this is just an initiative of the management board."
The merger of the two meat giants was made easier last week following the announcement that BIG Bank Gdanski (BIG BG) sold off its 21% block of shares in Sokolow in two tranches for a minimum zl. 38 million ($9 million) based on the share price of zl. 3.81 and zl. 4.45 for each tranche.
BIG BG's sale of its Sokolow stake was all but assured following a shareholders meeting held at the end of last month, during which three representatives of Farm Food and two from the Swedish Farmers Federation (LRF) were put on Sokolow's supervisory board. The marked absence of a BIG BG representative on the board ended speculation that the bank could chart the future direction of the nation's third-largest meat producer.
After the BIG BG sale, LRF had control of roughly 40% of Sokolow's shares, according to Pawel Malyska, an analyst at Bank Gospodarki Zywnosciowej (BGZ) brokerage.
Not only does BIG BG's pullout streamline ownership in Sokolow, it also marks another step in the consolidation of the meat industry here. Once Sokolow and Farm Food merge, the new company will control about 19% of the meat market with sales of more than zl. 550 million ($131 million), based on last year's earnings for each company. Presently, Animex holds a 12% market stake, with Morliny now ranked fourth with 6% market share.
Being top dog in Poland is an idea that a consortium of Swedish investors with LRF at the helm has been pushing since last June.
"We are now closer to that fusion," said Bogna Sikorska, an analyst with CDM Pekao Securities.
The match is a good one, Jastrzebski said. Both groups have modern production facilities, and all factories have the necessary certificates permitting them to export to the European Union (EU) and the United States, he said. Farm Food has a strong brand name in Poland and Sokolow commands a 70% share of the domestic salami market, he said. "It's just a question of reorganizing to benefit from the effect of synergy," Jastrzebski said.
That synergy will be enhanced by the presence of an international strategic investor, a role LRF will play, Jastrzebski said. "For the first time both Sokolow and Farm Foods will have a real strategic investor. Up to now BIG BG was a financial investor in Sokolow, one who didn't bring any technological know-how or other knowledge related to the sector."
LRF began its ownership in Farm Food last summer and that hookup helped the meat maker weather the Russian crisis, said Jastrzebski, noting Farm Food and Morliny as the only profitable, publicly traded meat firms.
Farm Food reported third-quarter operating profit of zl. 5.9 million ($1.4 million) on zl. 154.3 million ($36.7 million) in revenue, according to analysts. Although down from zl. 12.6 million ($3.6 million) on zl. 214.6 million ($61 million) in sales during the same period last year, the Russian crisis cut some returns up to 75%. By comparison, Sokolow reported an operating loss of zl. 11 million ($2.6 million) for the third quarter down from an operating profit of zl. 10 million ($2.9 million) last year. To curb losses, Sokolow last week said it was trimming back production and cutting 10% of its workforce, between 250-300 workers, the company said.
