Cherkizovo Group, the largest vertically integrated meat and feed producer in Russia, announced its decision to acquire NAPKO, one of Russia’s leading grain producers.
Among other assets, Cherkizovo Group will acquire NAPKO’s agricultural land of 147,000 hectares located in the Lipetsk, Tambov and Penza regions, which are strategically important areas for Cherkizovo Group. In 2016, NAPKO produced 250,000 tons of grain. Following the acquisition, Cherkziovo Group’s total operating land bank will reach 287,000 hectares. As part of the transaction, the Group will also acquire the supporting production infrastructure to cultivate the land and store the grain.
Sergey Mikhailov, CEO of Cherkizovo Group, commented: “We welcome our decision to acquire NAPKO’s business. While organic growth remains our priority, this acquisition represents an excellent example of the strategic M&A opportunities we are ready to explore to further strengthen our vertical integration, supply chain and business model generally. By extending our land bank we will increase our self-sufficiency in grain and focus on synergies and efficiencies to reduce our unit production costs. Following this acquisition, we expect to increase our self-sufficiency in grain to 60 per cent in the next few years from 30 per cent at the end of 2016.”
NAPKO has been one of Cherkizovo Group’s most trusted business partners for a number of years, with the Group buying approximately 9-11 per cent of its grain from NAPKO each year. NAPKO’s land bank complements the Group both in terms of geography and the types of crops cultivated, which include wheat, corn, sunflower and peas. All the acquired assets will be integrated into Cherkizovo’s grain farming segment and the Group will retain NAPKO’s existing management team and employees.
This acquisition will allow the Group to reduce its exposure to grain market volatility, including possible grain shortages, local currency volatility and changes to grain suppliers’ pricing policies. NAPKO generates positive cash flow and has a relatively moderate level of debt servicing.
Cherkizovo will pay in cash RUB 5 billion for NAPKO’s equity and assume NAPKO’s net debt, which stood at RUB 751 million as of 31 March 2017. This acquisition debt used to finance it will not violate any of Cherkizovo Group’s bank covenants.
An independent valuation of NAPKO, conducted by Ernst & Young, confirms that NAPKO fully corresponds with the average market multiples of similar Russian companies. Cherkizovo Board has approved the proposed acquisition by Cherkizovo Group’s company of 100 per cent participation share in the charter capital of NAPKO from affiliated persons. The transaction is expected to be finalized within the next 30 to 60 days.