Agrokultura Board: "Shareholders with a prudent view of risk should accept the mandatory offer"
This statement is rendered by the Board of Directors (the “Board”) of Agrokultura AB (the “Company”) with regard to the mandatory bid (the”Bid” or the “mandatory bid”) launched by Steenord Corp (“Steenord”) in accordance with chapter III in the Takeover Rules for Certain Multi-Trading Facilities (“Takeover Rules for MTFs”). The mandatory bid was made public on 28 August 2014, corresponding to an offer of SEK 4.50 in cash per share in the Company, and was initially subject to a condition relating to potentially necessary anti-competition clearances.
On 28 August 2014 after the announcement of the mandatory bid, a brief introductory statement was made by the Board regarding the Bid. The Board then inter alia expressed the following.
“As the Board previously announced, it looks positively on the new major shareholders’ intentions for Agrokultura and on the fact that the mandatory bid rules of First North are followed. The Board welcomes the new specific cash offer which is clearly in excess of the share price during a considerable time before Steenord started buying shares of Agrokultura. According to existing rules, it falls upon the Board to make a statement to the shareholders, at the latest two weeks before the expiry of the acceptance period, regarding whether the shareholders should accept the offer or not. The Board will therefore return with a more detailed announcement regarding the offer within the aforementioned timeframe, whereby the Board also will be able to take Steenord’s formal offer document into account.”
Steenord has thereafter amended the Bid so that it will from now on apply without any anti-competition condition, with the 29 September 2014 as a last acceptance date for participation in a first closing pursuant to the Bid, and such that the Bid will in effect extend to the expiry of the initial time-frame, i.e. 24 October 2014.
The statement made by the Board as set out below thus constitutes the more detailed recommendation from the Board in accordance with the Takeover Rules for MTFs as guidance for the shareholders’ decision prior to the last acceptance date on 29 September 2014 for the first closing – or alternatively prior to the 24 October 2014 – in the matter whether or not the mandatory bid is to be accepted.
For shareholders with a relatively prudent view on risk, and where no specific considerations are relevant as further discussed below, the Board recommends the shareholders to accept the Bid. The board members who own or control shares in Agrokultura currently intend to accept the Bid wholly or partially. The reasons are summarised below.
The Board is of the view that the Company as well as share investments in the Company have a significant potential, but are also subject to significant risk.
Since several years, the Company and its shares have been valued far below the book value per share of the Company’s net assets. In addition, the Company has regularly shown operational deficits, which from time to time have been substantial. It is only in the latest half-year report that the Company has been able to show profits from the operations. This is positive and is confirming that the Board’s strategy the last few years has been adequate, and this turn-around should moreover create some strategic freedom of action which was perhaps not at hand before. The level of this profit, and any additional profit potential, should however need to become sustainably higher in order to become satisfactory in relation to the book value per share of the Company’s net assets when taking into account the operational and political risks that the Company’s business is subject to.
It is only in the somewhat longer term, and assuming that the current pricing picture would roughly remain in place, that is possible to envisage – and as noted then subject to significant risk – that the Company’s current business and assets would generate such surpluses so that the surpluses would justify a share price corresponding to or even exceeding the book value of the assets. The Company’s strategy since a few years – i.e. seeking disposals of assets at levels reflecting book values in parallel to the increased profitability focus – is based on the same underlying assessment. The disposals and the preparations for disposals during the last year should also indicate that it is indeed possible to obtain prices at levels reflecting book values, on the one hand, but that this may take longer than expected and could entail complex and inherently uncertain disposal processes, on the other hand. Sales right now of shares in Agrokultura into the Bid could be seen as an accelerated and simplified alternative to the current strategy of the Board, something which would also reflect a significant discount when compared to the aforementioned book value, however. The Board can conclude that the book value per share, being SEK 6.39 in the latest half-year report would result in a lower net to the Company and to the shareholders in case of an assumed dismantlement of all the Company’s assets at levels reflecting book values, although presumably considerably closer to SEK 6.39 per share than SEK 4.50 per share. This is due to costs for handling and disposals, tax implications, and the lapse of time where in particular the risk for renewed current deficits must be taken into account. Although one can presumably assess that it is quite possible under the current strategy to run the Company’s business continuously with a positive result, and even to improve cost-efficiency further, there will thus remain a certain risk for renewed current deficits. The political risk which is quite difficult to evaluate should also be taken into account since the Company’s business is conducted in Russia and Ukraine. A risk factor that is even harder to assess could be the preparedness of individual shareholders to live with an investment risk when the risk is seen in light of the influence of that the individual shareholder might be able to exercise.
In this context, the Board would like to point out that the book value discount when valuing the Company’s shares, whether historically in the stock-market or when evaluating the Bid, must be made subject to an overall assessment combining all relevant factors. When operational risk, financial risk, and political risk are expressed in terms of a reasonable yield requirement, and a reasonable investment time horizon for a presumed realisation of all assets of the Company to at least book values –and where the investment time horizon for such presumed disposals would be counted in years rather than in months according to the Board’s experience – the level of the Bid would appear as attractive when assuming reasonable yield requirements. Here, the Board would also like to point out that the current valuation expressing the level of the Bid would appear as quite attractive when comparing with other listed comparable agricultural companies with similar operations. Moreover, the level of the Bid is expressing a value appreciation when comparing with the preceding earlier stock-market pricing, for instance 53% when comparing with the average stock price over the first six months of 2014. This is also reflecting a significantly better yield than for the Swedish stock market in general, as well as when comparing with listed comparable companies.
Against the above background, the Board has thus concluded that the book value discount which the mandatory bid is expressing is appearing to be adequate, and that the level of the Bid is attractive when the discount based on reasonable assumptions regarding yield requirements and investment time horizons is compared to today’s stock market price of the shares in the Company. This conclusion remains the same if this discount is compared to an assumed outcome of the Board’s current strategy based on increased efficiency as well as disposals if and when book values can realised.
The above assessment shall of course be contrasted with the fact the Company may change its current strategy, not the least by virtue of the Company having a new controlling shareholder. It could for instance be envisaged that disposals at book values would no longer be seen as interesting enough, and/or that the new main owner would see a further development potential in the current assets, as well as that possibilities for interesting additional acquisitions that could be envisaged. The Board has on its part abstained from assessments as to whether conceivable changes would speak for a continued shareholding (or in itself would speak against a continued shareholding). This is rather an assessment that current and also future shareholders would have to make over time, while the Company will remain listed and will continue its business under the new main shareholder’s control. For such shareholders who see a specific potential for the Company’s range of assets (such as for a general value appreciation, or for a materially increased yields, or for combination possibilities), and who have confidence in the intentions and possibilities of the new Russian key shareholder to operate more effectively in Russia and Ukraine, the Board will confine its guidance to point out that such other specific considerations may very well justify a continued shareholding. The Board also believes that the main shareholder’s expressed intention to keep the Company as listed on First North is positive and is without doubt realistic, and could be relied on when the individual shareholders consider these matters. The more long-term that the individual shareholder is, as well as the more risk-tolerant that the individual shareholder may be, the more interesting could a continued shareholding in the Company be. For certain shareholders, specific considerations could thus lead to that the weighing between risk and potential would lead to a different outcome than the Board’s above-stated conclusion. All shareholders must of course make a diligent assessment on their own based on their own portfolio situation as well as their risk tolerance, investment time horizon and the liquidity on their own part for the shares from time to time.
In addition, the Board has no other view as regards the assessment stated by Steenord regarding the implications in the near term of the completion of the Bid when it comes to the management and employees of Agrokultura in terms of the employment conditions and the employment situation on the locations where Agrokultura is conducting business.
About Agrokultura AB (publ)
Agrokultura invests in farmland and produces agricultural commodities in Russia and Ukraine. The Group aims to generate an attractive return on invested capital by optimally utilizing its agricultural land bank through crop production, livestock and related operations. Shares in Agrokultura are listed in Sweden on the Nasdaq OMX First North exchange under the ticker AGRA and the Group’s Certified Adviser is Remium Nordic AB.