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Maag Grupp must sell off two major food brands ahead of HKScan purchase

HKScan's Tallegg factory in Tabasalu, Estonia.
HKScan's Tallegg factory in Tabasalu, Estonia. Source: HKScan

Food industry company Maag Grupp has obtained permission from the Competition Authority (Konkurentsiamet) to purchase the Baltic arm of HKScan, though Maag will have to divest itself of two of its major food brands to do so.

In order to achieve the purchase, the Competition Authority will require Maag Grupp to lose two of its brands, namely Rannamõisa and Rannarootsi Lihatööstus.

Juha Ruohola, CEO of HKScan, a Finnish multinational, said: "The sale of the Baltic businesses will improve HKScan's profitability and strengthen its balance sheet."

"In addition, the divestment will enhance our ability to improve our production efficiency and implement our long-term strategy to grow as a versatile food company," Ruohola went on, via a company press release.

Meanwhile, Director General of the Competition Authority Evelin Pärn-Lee said: "AS Maag Grupp will divest itself of its existing businesses operating in the field of the production and sale of meat products, in two areas- chicken products, marketed under the Rannamõisa brand, and the AS Rannarootsi Lihatööstus brand."

"Thanks to this commitment, this takeover will not result in any permanent change in the market structure or the concentration of the AS Maag Grupp and AS HKScan Estonia business groups," she went on.

HKScan plans to sell its Estonian, Latvian and Lithuanian businesses to Maag Grupp, at a price tag of €90 million. 

As such, the deal also needed the go-ahead from the Latvian Competition Authority, which was already granted in February this year.

Maag Grupp CFO Erik Haavamäe said this allowed the company to move on to the next stage of the transaction.

"What the new structure of Maag Group will be after the merger will be revealed in the coming months," Haavamäe said.

"The decision made today is vital to the completion of the deal, from the legal aspect, i.e. share acquisition," he went on, adding that companies in the group will be able to continue their day-to-day work.

"The sale will help Maag to expand and significantly increase its production capacity, which will also significantly increase our export potential," Haavamäe went on.

Evelin Pärn-Lee at the Competition Authority said HKScan and Maag Grupp represent firms that both have a very strong market position in the production and sale of meat products in Estonia, with a wide range of products and have well-known brands under their respective umbrellas.

This would mean that, in the opinion of the Competition Authority, a full-scale merger of the companies would have significantly damaged competition in that sector.

This means Maag Grupp must dispose of its Rannamõisa shares within a "reasonable time frame" and its shares in Rannarootsi Lihatoosös over a two-to-three-year perspective, though the exact deadlines for this transfer remain confidential.

Under the terms of the Competition Act, the Competition Authority can grant permission for a concentration of the kind that the merger would have led to, only if the parties to that market dominance undertake obligations to avoid damaging the competition. 

After signing a contract in the winter, Maag Grupp planned to complete the sale transaction in the second half of this year.

HKScan owns the Rakvere, Tallegg, Rigas Miesnieks, Jelgava and Klaipedos Maistas brands, across all three Baltic states. It has been operating in the Baltic market since 1998, and employs approximately 1,500 people in all three Baltic states, reporting a 2022 net turnover of €196 million.

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Editor: Andrew Whyte, Barbara Oja

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