Mystery surrounds bidders for Russian meat giant

By Eugene Vorotnikov

- Last updated on GMT

Mystery surrounds bidders for Russian meat giant
The quest to identify a buyer for Cherkizovo Group is intensifying, according to Russian media sources.

The company, which is one of Russia’s largest meat and poultry producers and processors, is 89.5% owned by the Babayev family. On Tuesday 19 December 2017, Russian language newspapers, including ‘Kommersant’​, reported the Babayevs were in serious sales talks with potential Russian and foreign agricultural company buyers. GlobalMeatNews​ contacted Cherkizovo, whose representatives refused to formally comment on the reports.

Among the reported major bidders are Thailand’s CP Foods (Charoen Pokphand Foods Public Company Ltd), although a CPF spokesperson also refused to comment directly on any negotiations with Cherkizovo. However he said CP was interested in building a “vertical integration structure in all segments”​ of its company, including through mergers and acquisitions.

Another reported suitor is Russia’s Rusagro Group. Its potential interest in Cherkizovo has been reflected by statements from Rusagro’s CEO Maxim Basov, who said poultry farming (a major part of Cherkizovo’s business) could become a new direction for his group. Cherkizovo’s eight poultry production hubs operate alongside its 15 pig farms and four meat processing plants. In 2016 the group, according to its own data, accounted for 10% of the Russian poultry market in volume terms, 5% of the Russian pork market and 6% of the country’s meat processing market.

The company’s proceeds in January-June of 2017 grew by 12%, to RUB43.3 billion (US$736m), and net profits by a factor of 5.4, up to RUB5.1bn (US$86.9m).

A potential price tag for the deal has not been disclosed. However, sources close to Cherkizovo and the Babayev family told this site that bidding might reach RUB118.5bn (US$2bn).

Such a high sum can be mainly explained by the annual growth of the company’s revenues by 12%-13% per year, which is considered a good pace for the sector. However, according to analysts at the Russian Ministry of Agriculture, the value of Cherkizovo could be depressed by its high levels of debt. As of 30 September 2017, the company’s own financial statements recorded its net debt as RUB47.2bn (US$804m). The group’s capitalisation on the Moscow stock exchange is valued at RUB51.1bn (US$870m).

“In the case of CP Foods, the company has been long looking for the purchase of a vertically-integrated meat business in Russia,”​ said Vyacheslav Smauts, head of the Voronezh-based Smauts & Partners enterprise, a major meat producer. “For this purpose, the company negotiated with the Ostankino Meat Processing Plant. However, no final agreements were reached by the parties.”

CP Foods already operates some poultry assets in Russia. In 2015 the company paid US$680m for the poultry farms Severnaya and Voiskovitsy.

Agriculture ministry analysts believe Rusagro’s purchase of Cherkizovo would allow the latter to diversify its product portfolio, increase its presence in retail chains and start poultry meat exports to the Middle East.

Related topics: Industry & Markets, Russia

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