Swedes prepare to take over Sokolow and top meat spot
Market watchers last week signaled a sell off of BIG Bank Gdanski's (BIG BG) shares in Sokolow that would pave the way for a Swedish-led merger with Farm Food creating the nation's largest meat producer.
During the Sokolow shareholders meeting on Oct. 30, shareholders placed two representatives of the Swedish Farmers Federation (LRF) and three representatives from Farm Food on Sokolow's six-member supervisory board. The inclusion of Farm Food, which has no ownership stake in Sokolow, and the lack of any board representation for BIG BG, which holds a 21% ownership stake in Sokolow, has market watchers convinced that the bankers are on their way out and a merger is in the offing.
"This suggests that (BIG BG) has abandoned the company and it will want to sell its shares in the best way possible," said Bogna Sikorska, an analyst with CDM Pekao Securities. "Here the most important question is to establish parity of shares," said Sikorska about a Sokolow-Farm Food merger. Sikorska would not speculate on the parity and company officials were not available for comment at press time.
Shares in Farm Food fell early in the week but by Thursday closed at zl. 11.40, up 1.8% on the week. Sokolow came under selling pressure at the beginning of the week and closed down 2.6% at zl. 3.7 on Thursday.
The expected pullout by BIG BG from Sokolow essentially removes a possible obstacle on the road to merging Farm Food, the nation's No. 2 meat producer, and Sokolow, ranked third in nationwide market share. BIG BG with its 21% stake in Sokolow was positioned to block the merger idea, which was first floated in June by a consortium of Swedish investors with LRF at the helm.
"There is no great surprise," Sikorska said. "What we can say now is that the fusion is more than realistic. It probably won't happen immediately, but it will happen."
Last weekend's supervisory board changes were part of the merger script, analysts said.
In addition to boardroom changes, Sokolow last week announced the sale of its meat delivery firm to Morliny, the nation's No. 4 meat producer with 6% market share. As Farm Foods has its own meat delivery unit, the Sokolow sale suggests the merger candidates have begun to work together to weed out duplicate assets, slim down operations and reduce overhead costs.
"(The fusion) is starting to happen on different levels," Sikorska said.
The LRF-led Swedish consortium is building a leading position on the Polish meat market. LRF entered the market in June 1998 buying a 15% stake in Farm Food. This summer, LRF acquired 10% of shares in Sokolow through its subsidiary Lantbrukarnas Ekonomii. At the same time, consortium member Swedish Meat bought an additional 9% of Sokolow. Altogether the Swedish consortium is estimated to have 28% in Sokolow, said Maria Morawska, analyst at Bank Slaski.
A merger between Sokolow and Farm Food would create the nation's largest meat producer with 19% market share and comes amid consolidation of the highly fragmented sector. Presently, the nation's top dog in the meat market is Animex with 12% market share.
"(The fusion) creates a new leader that has the advantage over others," Sikorska said. "They will be able to dictate conditions in large retail chains."
The Swedes have also positioned themselves to dictate conditions to Sokolow shareholder BIG BG.
"All the trumps are in the hands of the Swedes, BIG BG doesn't have anything itself," Sikorska said. "BIG (BG) doesn't have a choice. It must sell at the price the Swedes will agree to."
Consolidation of the meat market behind major producers will likely crowd out small-scale operations that can't achieve economies of scale, but dominate the domestic stage, analysts said.
"If we are on our way to the (European Union,) there has to be more order on this market and this will help," Sikorska said. The current market is not in accordance with norms in the broader marketplace, she said.
