TALLINN - In an unexpected move, A.Le Coq, a Tartu-based beverage company, announced
plans last week to purchase one of its main competitors, Osel Foods, in its
entirety. The two companies signed a letter of good intentions on Sept. 10,
and have currently filed a merger application with the Estonian Competition
Board, which would give the go-ahead for the purchase in early October if
the application were accepted.
"We have only made the purchasing offer. The actual purchase will occur
after the first or second week of October," said Tarmo Noop, chief executive
officer of A.Le Coq.
"A.Le Coq made an offer in mid-August for 100 percent of our shares. We
signed a letter of intent and applied to the competition board. They have
one month's time to calculate to see if this is a union that won't interfere
with competition or not," said Osel CEO Kuldar Leis.
A.Le Coq remains a leading producer of alcoholic beverages in Estonia. It
also produces a number of soft drink and water products. Owned by the
Finnish company Olvi, the A.Le Coq group also owns the majority of two other
brewing companies in the Baltics, Cesu Alus in Latvia and Ragutis in
Lithuania. It has existing distribution contracts in both countries, and its
total turnover for the first half of 2004 was more than 320 million kroons
(20 million euros).
According to Noop, A.Le Coq had plans to enter the Baltic juice market in
2004 and saw the acquisition of Osel Foods as the easiest way to do so.
"We wanted to enter the juice market, and buying another company who had the
technology and know-how seemed like the best option," Noop said.
"We see quite big possibilities and opportunities in that market the juice
business is rising in the Baltics," he added.
Another big reason for the decision was that A.Le Coq needed more room for
production.
"During our top season from May to August we have a lack of capacity to
produce enough soft drinks and water. Our territory at the Tartu brewery is
quite small," Noop said.
The idea of combining the two companies met welcome ears at Osel Foods,
where CEO Kuldar Leis sees the merger as mutually beneficial.
"We have known each other for quite a long time as we produce similar
products" Leis said, adding that "it is amazing that they have interest in
buying us."
Osel Foods has a 10-year history of producing such popular regional
beverages as Aura fruit juices, Gruuv lemonade, the Gin Long Drink and Kali.
Its turnover for the first half of 2003 was 110 million kroons. However it
is having a hard time meeting production demands during the busy summer
season, and has no means to begin distributing outside of the Estonian
market.
"We don't have enough capacities here for production. In summer we cannot
produce as many beverages as we want. A.Le Coq is strong in all of the
Baltic states, and it is a good idea to start selling our products in Latvia
and Lithuania," he said.
Located in Reola, a small town near Tartu, Osel Foods' factory will handle
the production of non-alcoholic beverages soft drinks, juices, juice
drinks if the purchase application is accepted by the competition board.
Reola may be further developed to accommodate a growing A.Le Coq.
"There are a lot of options for development at Osel Foods. There is quite a
lot of property available. Our best option is to make investments and
develop in Reola," Noop said.
He also guaranteed that despite an increase in foreign distribution and the
Finnish ownership of the company, the corporate headquarters would remain in
the Tartu area.
"All of our management is in Tartu and will remain in Estonia."
Kaia Kaarmann, writing for the Estonian Competition Board, says that until
the decision is handed down in October, the status of A.Le Coq and Osel
Food's merger application will remain secret.
"Approval of a merger shall be based on the need to maintain and develop
competition, taking into account the structure of goods markets and the
actual and potential competition in those markets," she said.
As long as the merger does not stifle opportunities for competitors to
access the goods market, according to the guidelines set by the board, the
application should meet the prerequisites for approval.
A.Le Coq and Osel Foods currently face competition from, among others, Saku
and Coca Cola.
Cardo Remmel, chairman of the Saku Brewery, said he did not see A.Le Coq's
purchase of Osel as a threat to competition in the market.
"All over the world is a known practice to buy [another] brand when your own
is not strong enough," he said.
"In the carbonated beverages market, our brewery already has a good position
and there are no strong product brands for A.Le Coq to get from Osel Foods,"
Remmel added.
Noop is confident that the merger does not threaten competition within the
market and expects his company's proposal to be approved by the competition
board.
"We, at the moment, can see no reasons why they would say no to our
proposal," he said.
