Icelandic businessman expands his food chain

  • 2001-06-07
  • Ilze Arklina
RIGA - The majority owner of the two largest Latvian sweets producers – the chocolate company Laima and the pastry company Staburadze – Icelandic businessman Gisli Reynisson recently announced some recent and planned acquisitions within the Latvian food sector.

Two Icelandic-owned small food companies, Euro Food and Eurosnack, have been taken over by Laima and Staburadze. Reynisson is planning to buy another large food company in Latvia this year, he told The Baltic Times on May 29. According to sources, negotiations with the majority shareholders to buy part of Latvian juice maker Gutta will also be completed soon.

Chocolate pizza

Laima purchased pizza-maker Euro Foods for 518,000 lats ($820,000). The company was formerly owned by another Icelandic businessman, Haraldur Fridriksson.

"This acquisition is very much in line with our strategy to become a strong food group in Latvia," Reynisson said. "They have what we like; a very strong brand name we can build on," he said. "Their (Euro Food's) products, especially their fresh pizzas, are very similar to our fresh tarts, so we can use the distribution channels and operate this company at a much lower cost."

Euro Food produces and delivers frozen pastry products as well as fresh and ready-to-eat products. The company was established in 1995 and employs 32 people. Euro Food produces the well-know frozen pizza trademark Pedro Pizza.

Euro Food's turnover in 2000 was 250,000 lats and it was 32,000 lats in the red. Euro Food's planned profit for 2001 is 46,000 lats.

Another Reynisson's company, candy maker Noi Baltija, purchased the food company Eurosnack for the price of 5 lats, the companies announced on May 31. Eurosnack's turnover in 2000 was 128,755 lats, and it posted a loss of 66,766 lats

"Eurosnack produces raw materials which are used by both Laima and Staburadze, so the reason for this purchase was first and foremost raw material possibilities," said Reynisson.

"With these purchases, they (Icelanders) are withdrawing their investment from Latvia," Aldis Sipols, a small shareholder in Staburadze, told The Baltic Times. "They are taking over significant control with little money."

"No, absolutely not," Reynisson responded laughing. He said he and his partner, Icelandic sweet maker Noi Sirius, are concentrating the food business under the umbrella of the Nordic Food company, which intends to buy more companies in Latvia. "So we are interested to invest more, not less."

Juice maker for sale

Reynisson said he has several negotiations underway to buy more companies with strong brand names within the Latvian food and beverage sector.

"We are in discussion about buying large food companies in Latvia and we hope that these deals can be finalized this year," he said.

Sources who wanted to remain anonymous said that the company to be purchased could be the Latvian juicemaker Gutta, which has been plagued by financial hardships for some time.

Druvis Murmanis, vice president for Hansabanka, one of Gutta's largest shareholders, confirmed to The Baltic Times that the bank is actively negotiating with a potential buyer of Gutta. "This deal is very close to resolution."

"We can't be a long-term investor in a business not related to the banking, as we as a bank do not have the necessary knowledge to run it," Murmanis said. Hansabanka together with the packaging company Tetra Pak is the largest shareholder of Gutta, owning some 90 percent.

The rest of the shares are quoted on the second list of the Riga Stock Exchange. Officially, Hansabanka owns only 36 percent of the shares, according to Murmanis, the rest are owned by Tetra Pak, Estonian Hansapank and various offshore companies.

"We are interested to sell all of the shares," Murmanis said.

He noted that Hansabanka can credit Gutta's buyer, a tactic already used by Reynisson in other acquisitions.

Gutta's financial problems began at the end of 1999, when the company's creditors, including Hansabanka, called in the company's debts.

"Gutta did not repay its loans on time," the bank's representatives said last May. The quotation of Gutta's shares was halted in February 2000, as the company's creditors asked the court to declare Gutta insolvent. When the quotation was renewed in March, the company's shares fell dramatically. (See chart.) As the closure of the company was not in the creditors' interests, a decision was taken to capitalize the debt and extend the repayment term of the loan.

Court rules

Meanwhile, minority shareholders at Staburadze, a publicly traded company, haven't been very happy with Reynisson's recent acquisitions. Latvia's stock market regulators, who ruled May 11 that Reynisson make a mandatory buyout offer to minority holders, lost the first round of a legal battle. The Riga Central District Court decided on June 1 to satisfy Reynisson's claim against the commission. The commission has the right to appeal the sentence within 20 days.

"This day is a very good day for me and all investors who want to invest in Latvia," Reynisson said after the court ruling.

According to the Latvian law on securities, if a single shareholder or shareholders' group has either directly or indirectly acquired more than 50 percent of a company, they have to offer to buy outstanding shares from minority shareholders.

The commission ruled that Reynisson was "related indirectly" to two other Icelandic shareholders of Staburadze – its Board Chairman Tryggvi Hallvardsson and businessman Johann Valbjorn Olafsson, who, according to regulators, bought the shares under "Reynisson's orders." Combined, the three Icelandic businessmen own more than 57 percent of Staburadze.

Takeover turnaround

Juris Kaza, a journalist for the Latvian business daily Dienas Business, told The Baltic Times that "takeover turnaround" business tactics used by Reynisson are common in Western markets.

"It's natural to consolidate the companies using the cash flows of the stronger ones, in this case, Laima," Kaza said.

He stressed though that the Latvian market has not been used to such activities. "I think Reynisson is audaciously using the schemes used by big financial sharks in the United States," said Kaza.

Ivars Kalviskis, the former director of Laima, said that it is too early to gauge Reynisson's success.

"We will be able to see only at the end of the year whether his strategic plans will become a reality," Kalviskis noted.

"For us, it's long-term development," Reynisson said. "Before we bought Staburadze, it was not exporting at all. Last year, Laima and Staburadze exported 15 percent of their production.

"In three years, they will export 50 percent of their production. We are looking to Scandinavia, Western Europe and Russia as the main export markets. This is what makes it so interesting."