The agreement between Linas Agro Group and KG Group would create a new giant: it would employ 6,000 people and generate more than one billion in revenue | Deal

In Lithuania, where the merger of two large companies is a rare event, an extraordinary message was heard on Friday: Linas Agro Group announced that it has signed a share purchase agreement with the shareholders of AB Kauno grūdai, AB Kaišiadorių paukštynas and AB Vilniaus paukštynas to acquire controlling interests in these and other related companies.

How 15 minutes Mažvydas Šileika, CFO of Linas Agro Group, revealed that the company has been looking for a possible purchase on the market for some time.

“We operate in a sufficiently conservative or stable field: agriculture and cultivation in it is quite difficult. We can grow through innovation, efficiency, but there is another way to expand: acquisitions.

Therefore, we have been looking for some time to see what solutions could be potentially good for us and what could be a good strategic acquisition so that we can expand our activities, ”explained M. Šileika.

If this transaction is successful, one of the largest groups of companies will be formed in Lithuania.

It is true that this still requires the permission of the Competition Council. And until such permission is available, Tautvydas Barštys, the main shareholder of the KG Group, will be the main shareholder. 15 minutes He stated that he could not comment on why he decided to sell his business.

“There are ongoing processes on which I cannot comment. You do not want to comment because it can happen, it cannot happen. When everything is clear, I will say. Now I do not want to say op without jumping the current”, T. Barštys did not reveal the reasons for the sale.

When there is all clarity, then I will say it. Now I do not want to say the operation without jumping the current, – T. Barštys refrained from commenting.

He recalled the transaction between Rimi and Iki, which did not take place because the Competition Council did not give him permission.

The news that one of the richest entrepreneurs in the country, T. Barštys, who has created and expanded the company since the beginning of Independence, is selling his business, surprised many representatives of the business community.

President of the Vilnius Business and Industry Association Sigitas Besagirskas 15 minutes nor did he hide his surprises.

S.Besagirskas considered that T. Barštys could have decided to sell the business, we found a new area in which he wants to invest.

“We need to find out where to put the mass of money that will be received by said company, because the inflation forecast for next year and the money will depreciate rapidly.

Consequently, T. Barštys has planned another purchase and it will be serious enough, because he looks at his business responsibly, he really loves his business, he is not an entrepreneur who only looks at everything from the outside ”, thinks S.Besagirskas.

You need to figure out where to put the mass of money that you will get from such a company, because the projected increase in inflation and next year’s money will depreciate rapidly. Consequently, T. Barštys has planned another purchase and it will be serious enough.

Linas Agro Group will be among the largest

The total amount of the transaction is not disclosed by agreement of the parties. However 15 minutes published this year research of the most valuable Lithuanian companies revealed that the value of “Kauno grūdai” could reach about 194 million. euros.

And if the deal went through, Linas Agro Group would be broken up between the country’s largest companies and the largest employers.

M. Šileika, CFO of Linas Agro Group, stated that the company would become one of the largest integrated agricultural and food production companies in the country.

“The group would employ about 6,000 people, in terms of turnover we would not double it, but about 30-40 percent. we would grow, revenues would exceed one billion euros, ”predicts M. Šileika.

The group would employ about 6,000 people, in terms of turnover we would not double, but about 30-40 percent. We would grow, revenues would exceed 1 billion euros, predicts M. Šileika.

Consequently, after the transaction, Linas Agro Group would claim to become the second employer in Lithuania among private companies, only surpassed by Maxima, where, according to Sodra, 13 thousand people were employed. people.

In terms of turnover, the company could be in the top five, equal to the largest groups in the country such as Ignitis Group (earned 1,095 million euros in 2019), but still behind the leader Orlen Lietuva (4,593 million euros) or Maxima. LT ”(1,700 million euros).

According to Alexander Izgorodin, economic advisor to Pyme Finance, after the acquisition, Linas Agro Group would become one of the strategic companies in the food industry and the agricultural sector, on which the results of the entire sector would largely depend.

“It just came to our knowledge then. The sector indicators – number of employees, production volumes, exports – will also largely depend on the success of the company”, 15 minutes the economist pointed out.

Its weight will be very high. The sector indicators – number of employees, production volumes, exports – will largely depend on the success of the company, said A. Izgorodin.

However, M. Šileika emphasizes that the company does not focus on the local market, where it competes with strong companies in separate segments, but on export markets: the Baltic countries, Scandinavia and Poland. However, regionally, even after the acquisition, Linas Agro Group will remain only a medium-sized company.

“We will grow in several segments: agriculture, services for farmers, food products such as poultry and flour. It is difficult to judge in general, but by individual segments in the region we would still be a fairly medium-sized player. In the Baltic and Scandinavian countries, and in Poland, much larger companies operate in almost all segments ”, M. Šileika is convinced.

For example, in the European poultry processing market, even after the acquisition, Linas Agro Group would remain out of the top 30 companies, as this market is dominated by large Polish and French processors, thinks M. Šileika.

Meanwhile, in other segments, such as flour and pasta, according to the interlocutor, the Kauno grūdai brand is one of the most significant, but there are many players in the market.

“Therefore, even if large enough companies merge, we would still be enough average players in Lithuania on a regional scale,” said M. Šileika.

It will help achieve economies of scale

The representative of Linas Agro Group emphasizes that after the acquisition of KG Group, the company sees enormous export potential and growth prospects, especially in the poultry and pasta segments.

Meanwhile, the cereal market in the Baltic countries, according to M. Šileika, is very competitive and here Linas Agro Group would not become the first player on the market.

“There are 3-4 players of similar size left, so our growth and expansion of the elevator network only provides more opportunities for farmers,” says M. Šileika not to occupy a dominant position.

Economists agree that the transaction would significantly strengthen Linas Agro Group’s position in export markets.

According to S. Besagirskas, the growth of companies to compete in the European and world market is necessary both for economies of scale and for the possibility of supplying larger quantities of products. And this would already allow the company to establish cooperation with large retail chains in Europe.

“With the capacity that KG Group and Linas Agro Group have separately, companies can only enter a certain range of markets. If they merge, they can offer their products to a wider market, they can connect with players like Walmart, who demand impressive quantities of products. Of the Lithuanian companies, apart from the Viči group, few can supply quantities to serve the giants of world trade, “says S.Besagirskas.

Meanwhile, Izgorodin adds on the importance of economies of scale. “The bigger the company, the cheaper it can buy raw materials and produce products”, emphasizes the economist.

And he identifies complex integration as a risk: Acquiring a large company with very different internal rules and processes takes a long time for companies to act as one.

Integrate companies easily

Meanwhile, representatives of Linas Agro Group emphasize that if the Competition Council blesses the transaction, the merger will take place gradually.

“It is intended to gradually integrate both groups, maintaining the businesses and strengths of both groups and taking advantage of synergies. So far, we do not plan to make major transformations, we are buying a business that is stable, known and we want our common entity to be successful, so we will integrate it little by little, ”said M. Šileika.

M.Šileika sees the greatest benefit from the acquisition of Kauno Grūdai through the fact that Linas Agro Group will become a vertically integrated company that can offer products “from the field to the table” or, in other words, from the cultivation of cereals or milk production to processing and trade. and the food supply that reaches the final consumer.

According to M. Šileika, after the transaction, Linas Agro Group will add the production of animal feed, as well as the production of porridge, flour and pasta to its portfolio.

“We see that our businesses fit together very well; they have enough synergies, on the other hand, and they complement each other well enough, because there are many areas in which we operate, and the grain of Kaunas, not the other way around”, summarized M. Šileika. .