The merger of Estonia's Tallinna Kulmhoone and Lithuania's Kauno Pieno Centras is the largest merger ever between an Estonian and a Lithuanian company.
The combined company expects an annual turnover of 500 million kroons ($34.72 million), according to a statement by Tallinna Kulmhoone.
Currently, Tallinna Kulmhoone controls 60 percent of the Estonian market for ice cream and Kauno Pieno Centras has 20 percent of the market in Lithuania, according to the statement.
The Estonian company's turnover in 1998 was 335 million kroons. Production and sale of ice cream accounted for 70 percent of the turnover. The same year, KPC's turnover was 78.4 million kroons, 100 percent of which came from ice cream.
The first order of business for the two companies will be to create a holding company, which will most likely be located in one of the Scandinavian countries, said Hanno Riismaa, investment director at Scandinavian Baltic Development, the firm coordinating and financing the merger.
Riismaa said the holding company will be registered in six months, at which time all shareholders of the two companies will be able to exchange their shares for shares in the holding company.
The merger is a victory for small shareholders," Riismaa said in a press release. "They will now have the opportunity through the exchange of stocks to become owners of an even bigger and more effective business."
Competing successfully in the Baltics and in markets abroad is the main goal of the merged company, Evald Karu, financial director at Tallinna Kulmhoone, said in a statement. Currently, each company earns approximately between 15 percent and 18 percent of its sales in nearby markets.
"[It] is an appropriate time to realize the existing potential in cooperating with new markets," said Margus Puust, chairman of the supervisory board at Tallinna Kulmhoone.
In June, the Estonian ice-cream giant opened a 2,500 square meter factory that many say is the most modern ice-cream factory in the Baltics. Puust said the new facility has increased production and sales for this year. The projected turnover for 1999 is 375 million kroons.
Tallinna Kulmhoone's biggest competitor in Estonia is Balbiino, which controls about 38 percent of the market, according to a Balbiino representative.
But, the merger may not pose a problem for either company. Although each company wishes to increase exports, Tallinna Kulmhoone is focusing on expanding west while Balbiino is looking east. Teet Anier, marketing director at Balbiino said in July that the company was focusing on exports to Russia.
European Union regulations and quotas on dairy exports make exporting to member nations more difficult for Baltic companies that are not EU-certified, according to the Estonian Veterinary and Food Inspectorate. Currently, no ice-cream factories in Estonia are EU-certified.
Estonians consume on average six to seven liters of ice cream per year, which Anier estimates is close to the European average but well below the 20 liter average per person consumed annually in the United States.
The small market for ice cream was one reason for the merger, Riismaa said.
"This is a new dimension for both businesses. The staff as well as the work will become international," he said.
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