For brief periods late last year it was difficult to find Mu on supermarket shelves. The company's financial problems led to short interruptions of production.
Alvydas Zabolis, CEO of VB Vilfima, creditor Vilniaus Bankas' brokerage firm, says many of the production shortages were based on "misunderstandings" and cash flow problems.
The last two years have not been easy for Birzu Pienas. A couple of ill-conceived acquisitions led the company to serious cash flow problems and, for brief spells, shortages in production. An article describing the debt-laden company's woes appeared in the Central European Business magazine last fall, and for the last several months, a strong current of media speculation has been predicting an acquisition by a strategic investor.
That Birzu, which is already 60 percent foreign-owned, will be purchased by another company seems certain: The only questions are when and by whom. While the company has avoided comment, Vilniaus Bankas, Birzu Pienas' largest creditor, has stepped in to restructure loans and find the right suitor for the firm.
Birzu Pienas' supervisory council has given two seats on the company's three-member board to Vilniaus Bankas' representatives Jonas Vaicaitis, the director of the bank's credit department, and Vidas Jelinskas, deputy director of the brokerage firm VB Vilfima. Birzu Pienas General Manager Valdas Songaila was re-appointed chairman of the board.
The Baltic News Service reported the company released the identity of some of its prospective buyers: Russia's Wimm-Bill-Dann, Rokiskio Suris, a Lithuanian dairy industry competitor, Vilniaus Prekyba, Lithuania's largest food retailer, and two unnamed investors.
But it is quite possible that the suitor will come from inside Lithuania's milk industry itself. Citing a lot of "white noise" about Birzu in past months, Alvydas Zabolis, chairman and CEO of VB Vilfima, agreed to discuss the milk industry's biggest story. Vilniaus Bankas, he reported, has financial arrangements with nearly all of Lithuania's dairies. After the Russian crisis took a large slice out of Lithuania's export volumes, the milk industry sales lost between 15 percent to 17 percent of its sales and production was reduced by 10 percent, Zabolis reports.
"Because of this all the [milk-producing] companies were under pressure. And someone who was not so strong really suffered financially, and all of this really led to a very high concentration of the market. All small dairies just disappeared and now we have a situation in the country where we have four producers of milk who constitute 70 percent of the total market," he said.
There are four main competitors left – Birzu Pienas, cheese company Rokiskio Suris, milk producer Zemaitijos Pienas, and Milk Stars. They are nearly equal in overall strength, Zabolis said, but control different niches.
Birzai has 35 percent of the white milk market and the most easily recognized trademark, but is the most expensive brand. Its cartons sell for nearly 40 percent more than the average price. Zemaitijos Pienas and Milk Stars made thus far successful forays into the yogurt market last year, and are currently dropping their prices. Rokiskio Suris, a large cheese exporter, will benefit from increasing cheese consumption in the world, said Zabolis. In the butter market, the competition is about even, he added.
Unfortunately for Birzai Pienas, a few mistimed acquisitions still haunt the company. In terms of net margin, Zabolis reported, the firm is generating losses and plenty of interest in acquisitions from its competitors. "Because Birzu Pienas has a weak financial situation compared to the other players, they are a target for consolidation. And for the time being, Rokiskio Cheese, which is an exporter, needs to diversify its production," Zabolis said.
Milk Stars and Zemaitijos Pienas, as well as a few unnamed strategic investors, also have shown interest in acquiring Birzu.
"There's a process of consolidation starting because this year the milk market was liberalized, and as it was liberalized, it became a target also for western producers and Scandinavian producers," Zabolis said.
For Birzu Pienas, the situation is similar to the situation in the sugar industry when the Danish concern Danisco purchased four of Lithuania's sugar production plants.
Birzu Pienas' problems started two years ago when it bought Vilniaus Dairy on privatization, and in a series of several controversial transactions, took control of Panevezio Pienas.
"At this time the company was trying to make a new [stock] issue but it was unrealistic, because the market price was at a 50 percent discount. There was no reason for investors to acquire new shares because they were able to buy existing shares at a lesser price."
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