TALLINN – Finnish meat packing company HK Ruokatalo Oy plans to acquire 80 percent of Estonia's biggest meat packer AS Rakvere Lihakombinaat. A preliminary agreement on the sale of Rakvere Lihakombinaat shares was signed with the owners of Rakvere Lihakombinaat AS Epeks and AS Talinvest on July 8.
The sale price is 190 million Finnish marks, or nearly 500 million kroons ($34.4 million). HK Ruokatalo will pay about 130 million marks of the purchase price in cash, and the rest in shares.
Finland's HK Ruokatalo paid two and half times the market price, or about 16.50 kroons a share, for its majority stake in the Rakvere Lihakombinaat meat-packer while the price on the free market of the Tallinn stock exchange on the last day of trading, June 30, was 6.80 kroons.
AS Talinvest Council Chairman Jaak Roosipuu said, the Finnish meat packer was paying a higher price for Rakvere Lihakombinaat shares because it considered the company's real value and future prospects.
Roosipuu said that Talinvest gave up its investment as this was laid down in Talinvest's investment strategy, according to which a company is sold after its price has achieved a certain level, in order to move on to new investments. The aim of the investments company is a high return on equity.
"This business operation is a very important detail in HK Ruokatalo development strategy. This will permit us to widen our operations from the Baltic countries to Russia and Eastern Europe," said HK Ruokatalo Managing Director Simo Palokangas.
HK Ruokatalo is going to make a proposal to its shareholders to issue shares for 50 million marks for AS Epeks, by which Epeks will acquire a stake of about 7 percent in Ruokatalo.
" Selling a stake in Rakvare Lihakombinaat was a profitable transaction. At the same time we will continue cooperation with HK Ruokatalo in the meat industry in Estonia and the Baltic states. Epeks can concentrate on new investments in food industry," said Toomas Kouhkna, chairman of the board of the investments company Epeks.
According to Palokangas, KH Ruokatalo is interested in putting its experience into practise with Rakvere and contributing to Rakvere's development in Estonia and the Baltic states.
The relations between the two leading meat packers has been longstanding. HK Ruokatalo designed the new premises of Rakvere Lihakombinaat and it has acted as supervisor during the constructions. The employees of Rakvere Lihakombinaat have been trained in HK Ruokatalo factories.
Rakvere Lihakombinaat, a group with nearly 1,500 employees, predicted a turnover of 1.2 billion kroons this year. The sales of 1997 totalled 829 million kroons and the loss was 2.7 million kroons. The group produces around 30 million kilograms of meat products every year and its market share in Estonia is about 45 per cent and in Latvia about 20 per cent.
The subsidiaries of Rakvere Lihakombinaat are AS Ekseko, AS Linnulihatooted and Rigas Miesnieks in Latvia.
The company's main director will continue in his position and the deal is not affecting any existing jobs.
The HK Ruokatalo group employs 3,000 people and its turnover in 1997 was 7.1 billion kroons. The group's market share in Finland was 50 per cent in 1997 and it produced about 130 million kilograms of meat products.
The sale of AS Rakvere Lihakombinaat comes when the food industry in Estonia is at a low-point. The EU prohibition on Estonian milk exports and the new tax system implemented by the Russian government in March, which makes the export of food products to Russia unprofitable, has forced domestic manufacturers to seek new opportunities.
This is likely to be only the first step of this kind, as the somewhat struggling food industry needs investment injections. EU experts allowed Estonian companies a one-year development period at the beginning of the year.
"If the quality satisfies the EU experts, the license may be retained starting from Jan. 1, 1999 at the earliest," Estonian food industry leaders stated earlier this year.