HKScan's sale of its Baltic businesses to AS Maag Grupp will result in an intensified competitive situation that could benefit consumers but hurt other meat industries, said Olle Horm, a former employee of both companies and current CEO of the competing Atria Eesti.
HKScan informed Nasdaq Helsinki on Tuesday that it will be selling its Estonian, Latvian and Lithuanian subsidiaries to Maag Grupp at a price of €70-90 million.
According to the stock exchange release, the Baltic subsidiaries are very unprofitable businesses, with earnings before interest and taxes (EBIT) for the first three quarters of 2022 across all three markets combined equaling a loss of €26.6 million.
Law firm Ellex Raidla's Sven Papp, who advised the transaction, noted that €16 million of this €26.6 million loss was a one-off depreciation of goodwill, however the three Baltic subsidiaries' 2021 EBIT likewise equaled a loss of €5.4 million.
Horm, the CEO of Atria Eesti, whose brands include Maks ja Moorits and Wõro, said that HKScan's need to sell something due to poor financial results was obvious. "The fact that their Baltic part was for sale — those stories had been circulating for quite some time already," he told ERR.
How HKScan's Baltic businesses could continue to operate under Maag's ownership, however, is yet unclear, he continued.
The company's activities are broad, including agriculture, poultry farming and pig farming, and if all of this continues at their current capacities, Horm believes that could be pure gold for Estonian consumers. "If not, then it's a different situation," he added.
"When buying a loss-making business, obviously the owner has to have some kind of plan," Horm explained. "But nowadays it isn't so easy to reverse losses, considering the general market situation. In today's world, the profitability of the meat industry is extremely low in general, if not outright negative, but I guess they have a bolder, more powerful vision of the future than we do."
Maag announced that it did not want to divulge the company's more precise plans until the transaction was complete.
At the same time, Horm acknowledged that Maag Grupp has previously managed to acquire and turn struggling companies around, from Rannarootsi to several dairy businesses, proving that this is their strength.
"Thus far they've practiced doing so with other companies; they'll probably manage with Rakvere and Tallegg now as well," he added.
According to the competing company's CEO, Maag Grupp's key to turning businesses around has been an aggressive and robust approach and hiring the right people.
"Things are done the Estonian way, not the Finnish way; companies aren't hugely bloated with structures and the massive administrative bloat typical of multinational groups," he explained. "They do work, and the management is scaled back."
Maag Grupp conveyed the same message in its own press release, in which supervisory board member Erik Haavamäe said Maag's strength is first and foremost is its strong management culture. The press release also referenced its successful takeovers of meat and dairy companies Tere, Rannarootsi, Farmi and Nigula Piim.
While the concentration of companies under the control of a single owner could, according to economic logic, reduce competition on the market, Horm doesn't expect this will be the case.
"In addition to its losses, Rakvere has also been heavily losing its market share in recent years," he noted. "Others, including us, have been happily contributing to their loss of market share here. Life is going to get that much harder. At some point this loss of market share will be stopped."
Horm considers the sale of HKScan's Baltic businesses difficult news for Atria.
"We'll be gaining a very aggressive, professional competitor and a new, heightened competitive situation will emerge on the market, I expect," he said, acknowledging that this may of course mean good news for consumers. "But this will take time."
Editor: Aili Vahtla