Alpcot Agro offers to acquire Landkom International PLC
Alpcot Agro AB (“Alpcot Agro”) offers to acquire all outstanding shares and related instruments in Landkom International PLC (“Landkom”). For every 22.16 Landkom Shares 1 New Alpcot Agro Share is offered, which equals a total value of about SEK 139.3 million. After a completed acquisition it is the intention of Alpcot Agro to apply for listing at the London Stock Exchange main market during the second half of 2012 and later apply for a listing on the Main Market of at NASDAQ OMX Stockholm.
This press release is not intended for, and may not be distributed to or be published in, directly or indirectly, Australia, Canada, Hong Kong, Japan, New Zealand, South Africa or the USA, or any other jurisdiction where it would require any form of registration or would constitute a breach of law.
- The Boards of Alpcot Agro and Landkom announce that they have reached agreement on the terms of the recommended acquisition by Alpcot Agro of the entire issued and to be issued share capital of Landkom (the “Acquisition”). The Acquisition is to be effected by a Scheme of Arrangement (“Scheme”) and the Landkom Directors unanimously recommend that Landkom Shareholders vote in favour of the Acquisition.
- Under the terms of the Acquisition, Landkom Shareholders will be entitled to receive 1 New Alpcot Share for every 22.16 Landkom Shares. The exchange ratio has been derived from published net asset values, following adjustments, given that both Alpcot Agro and Landkom trade at significant discounts to net asset value.
- Based on the average closing price over the last 20 trading days of SEK 7.10 (GBP 0.66) per Alpcot Agro Share, the terms of the Acquisition value the existing issued share capital of Landkom at SEK 139,280,676 (approximately GBP 12.97 million), and represents a value of approximately SEK 0.32 (GBP 0.03) per Landkom Share.
- Following the completion of the Acquisition, present shareholders of Alpcot Agro will own 83 per cent of the Enlarged Group, Landkom Shareholders will hold approximately 16.43 per cent and Landkom Option Holders will hold up to 0.57 per cent of the issued share capital.
- Following a completed Acquisition, the Board of Directors of Alpcot Agro confirm their intention to seek to list the Enlarged Group on the Main Market of the London Stock Exchange during the second half of 2012, and later, seek a listing on the Main Market of NASDAQ OMX Stockholm.
- The Offer is subject inter alia, to the approval of the Anti-Monopoly Commission of Ukraine being obtained. For the full terms and conditions reference is made to the Scheme Document which will shortly be made available on the web pages of Alpcot Agro and Landkom.
- The Acquisition is to be effected by Scheme of Arrangement under section 157 of the Isle of Man Companies Act 2006 (as amended). The Scheme requires the approval of Landkom Shareholders at a Shareholders meeting and the sanction of the scheme by the High Court of Justice of the Isle of Man.
- Alpcot Agro has received irrevocable undertakings and letters of intent by shareholders in Landkom to vote in favour of the Acquisition or to procure that any other person votes in favour of the Resolutions in respect of a total of 192,900,866 Landkom Shares representing approximately 44.35 per cent of the total outstanding shares in Landkom.
- A more detailed description including the background to and reasons for the Acquisition, a comparison of the businesses of Alpcot Agro and Landkom, estimated synergies of the Enlarged Group, pro forma balance sheet of the Enlarged Group and a sensitivity analysis of the profitability in relation to different yield- and cost levels can be found in the Attachment below.
- Full details of the undertakings referred to above and the conditions on which they lapse are set out in the Announcement letter which can be downloaded from www.alpcotagro.com.
Commenting on the Acquisition, Katre Saard, Director of Alpcot Agro Ukraine, said:
“We are very excited about the opportunity to combine Alpcot Agro's and Landkom's operations. The proximity of our land banks in Western Ukraine enables multiple synergies. The balance of the combined entity's operations between Western Ukraine, Kaliningrad, and the Central Black Earth region in Russia allows us to mitigate any significant weather events. In both countries, we will have potential for significant improvements in crop yield. Both companies have made large strides in the last year toward improved financial performance, and we believe that our accumulated experience and the efficiencies created in the combined entity will increase the pace of these improvements.”
Commenting on the Acquisition, Joakim Ollén, Chairman of Alpcot Agro, said:
“A business combination of Alpcot Agro and Landkom is of great value for our company for several reasons. Better use of our management resources in Ukraine, more efficient production units and a better balance between our operations in Russia and Ukraine are some of the reasons why I see this combination as exceptionally positive for future profitability. Hereby significant value is created for our shareholders. Two medium sized agricultural companies unite and become a global top player in terms of cropped acreage. The merger will enable immediate cost synergies and a more liquid traded share. We have already established a close and productive dialogue with Landkom management and Board of Directors, and feel that our views are shared by them. This bodes well for the upcoming integration. We look forward to carrying out this positive move, and ask all shareholders of Landkom and Alpcot Agro to give their support.”
Commenting on the Acquisition, Neil Balfour, the Chairman of Landkom, said:
“Our ambition of becoming a substantial producer and processor of agricultural commodities for the global food and biofuel markets has become increasingly difficult to fulfil without access to substantial additional working capital. We need to refinance an important proportion of our working capital facilities if we are to operate effectively as a stand-alone entity and maintain, let alone increase, today's level of cropping. This recommended takeover provides Landkom with the financial stability to realise the full value of our attractive assets in Ukraine and its shareholders with the opportunity to be part of a much larger, multi-national group with more diversified operations and assets.
Enquiries:
Alpcot Agro | |
Joakim Ollén, Chairman of the Board | Tel: +46 (0) 703 542 407 |
Björn Lindström, Founder and Board member | Tel: +44 (0)79798 55556 |
Katre Saard, Founder, Director Alpcot Agro Ukraine | Tel: +44 (0)79798 55557 |
Landkom | |
Neil Balfour, Chairman of the Board | Tel: +44 (0) 20 7726 2690 |
About Alpcot Agro AB (publ)
Alpcot Agro is a Swedish limited liability company incorporated in 2006. The Company's business idea is to generate an attractive return on invested capital by optimally utilizing the Company's agricultural land bank through crop production, dairy farming and other similar operations in Russia and the other CIS states. The shares in Alpcot Agro are listed on First North under the ticker ALPA and the Company's Certified Adviser is Remium Nordic AB. Additional information is available on www.alpcotagro.com.
Attachment
- Background to and reasons for recommending the Acquisition
The Directors and Management of Alpcot Agro believe that the Acquisition represents an attractive opportunity to combine two companies with complementary businesses and strengths and create an Enlarged Group with greater competitiveness.
Landkom holds land in the very fertile regions of Western Ukraine, applies modern agricultural methods and uses high productive machinery and equipment from the West. The Directors and Management of Alpcot Agro are convinced that there exists considerable potential for achieving significant efficiency improvements in the Landkom business. The improvements are expected to lead to better harvests, reduced costs and enhanced financial results for the Enlarged Group following the Acquisition.
The Enlarged Group will operate a large scale farming business in both Russia and Ukraine. The combined business will encompass approximately 155,000 planted hectares with a capacity to further increase the cropped acreage during the coming years.
At the time of Landkom’s admission to AIM in 2007, Landkom stated in its admission document that it could potentially grow its land bank to 350,000 hectares. However the financial crisis in 2008 resulted in Landkom experiencing larger than expected operating losses and lower cash flows and, as a result, Landkom revised its land strategy to that of maintaining a land bank of approximately 74,000 hectares. In the past 18 months, progress has been made in consolidating the land bank through a land-swap programme and the amount of harvested land has consistently increased. Nevertheless, the Landkom Directors believe that the land holdings remain below optimal efficiency and greater benefits can be achieved through the creation of an Enlarged Group.
Landkom has made progress in terms of cost control within the business since its first harvests in 2007 and 2008. However, its expansion has been restricted by a lack of capital. The original machinery which was purchased with funds raised at the time of Landkom’s admission to AIM was not optimal for the scale of Landkom’s operations in Ukraine.
In order to expand the level of cropped land, Landkom has increasingly relied on its main trade supplier, Amako, for extending flexible trade payable terms. As at the end of September 2011, short term trade payables to Amako, financial assistance and prepayment from Amako in aggregate amounted to US$14.1 million. These short term trade payables need to be refinanced and the short term liabilities have left Landkom with limited working capital flexibility.
Following the Acquisition, the Landkom Directors believe the Enlarged Group will have greater financial flexibility and will be in a position to reduce short term trade payables to a normal operating level. The Landkom Directors also believe the Enlarged Group’s unleveraged structure will also enable it to attract more competitive terms for refinancing Landkom’s existing credit facility and establishing new lease agreements for machinery and equipment.
The Landkom Directors believe that following the Acquisition, the Enlarged Group will have a land bank and planted land to rival the largest operators in the global market. The Landkom Directors believe that the scale of the Enlarged Group will enable it to develop a sales organization able of delivering the maximum revenue for the commodities produced and will have a stronger purchasing power for inputs and machinery. Weather risk will be spread across a wider region which will reduce the risk to the Enlarged Group of adverse weather events.
Commitments have been made by Alpcot Agro to retain the best of Landkom’s operating management team to ensure that experience from past years is retained in the business and to enable the best practices of both businesses to be developed. Alpcot Agro's farming strategy in Ukraine is similar to that of Landkom in terms of crop mix, cost structure and execution which will facilitate integration.
The Landkom Directors believe that following a listing on the Main Market of the London Stock Exchange (which Alpcot Agro has stated is its intention to seek for the Enlarged Group in 2012), the Enlarged Group will be an attractive, more liquid vehicle for investors seeking to benefit from the long term prospects of agricultural investment in eastern Europe.
2. Synergies arising in the Enlarged Group following completion of the Acquisition
Operational synergies
Lower climate risk
Alpcot’s land bank is primarily concentrated in central Russia, where there is an inherent risk of limited rainfall and drought. Landkom’s land bank is primarily located in western Ukraine, where, due to its proximity to the Carpathian Mountains, higher precipitation is normal. Accordingly, the Alpcot Agro Directors believe that the Acquisition would allow additional diversification of the Enlarged Group’s land bank, thereby mitigating the climate risk.
Volume discounts and extended credit terms from suppliers of inputs and M&E
Following the Acquisition, the Alpcot Agro Directors believe that the Enlarged Group would be able to benefit from greater volume discounts and extended credit terms from suppliers of inputs (seeds, fertilizer, chemicals and fuel) and machinery and equipment.
Decrease in logistic costs due to consolidated land plots and enlarged operational areas
Certain of Landkom’s fields in western Ukraine are located close to Alpcot’s fields. Accordingly, the Alpcot Agro Directors believe that the Enlarged Group’s per hectare logistic costs (such as fuel and transport) could be reduced.
Financial synergies
Easier access to equity and debt markets for the larger entity
The Alpcot Agro Directors expect that the realisation of operational synergies following the Acquisition will strengthen the Enlarged Group’s financial results, increase free cash flows and improve liquidity which will result in easier access to equity and debt markets.
Decrease in indirect costs
Alpcot Agro and Landkom are currently two independent publicly listed companies, each responsible for the costs relating to their shares being listed on a stock exchange and publicly traded such as audit fees, board costs, public relations and other expenses.
Following the Acquisition, Landkom’s shares will be delisted and cease to be traded on AIM and the Enlarged Group’s Shares will remain listed only on NASDAQ OMX First North in Stockholm. As a result, Landkom will no longer be required to meet the AIM quotation costs of being listed referred to above. The Enlarged Group could also reduce other indirect costs following the Acquisition, such as management salaries, legal fees and insurance premiums.
All indirect costs will be allocated on a larger cropped area and this should reduce the required level of contribution per hectare to achieve profitability. Alpcot Agro believes that there exists potential to reduce Landkom’s indirect cost per hectare by 30 per cent over two years following the Acquisition. Alpcot Agro anticipates reduction of indirect costs of USD 115 (SEK 796) per hectare due to planned operating measures over a four year period in the Enlarged Group.
Improved share liquidity
Both Alpcot Agro and Landkom are currently considered “small cap” companies on their respective stock exchanges. Following the Acquisition, the Alpcot Agro Directors believe that the Enlarged Group in the longer run should expect a larger stock market capitalisation than that of either Alpcot Agro or Landkom prior to the Acquisition. Furthermore, the number of shareholders will increase as a result of the Acquisition which is expected to have a positive impact on the liquidity of Alpcot Agro shares on the stock exchange and can therefore be expected in general to have a positive effect in terms of shareholder value.
Upon completion of the Acquisition, the Alpcot Agro Board and management intend to seek a listing and admission to trading of the Alpcot Agro shares on the Main Market of the London Stock Exchange during the second half of 2012 and at a later date to seek a listing on the Main Market of NASDAQ OMX Stockholm.
Other synergies
Mitigation of political and country specific risks
Both Russia and Ukraine are emerging markets where the legal, financial and economic systems are not as well developed as in Western Europe. In such environments, decisions (especially political ones), are easily influenced by arbitrary factors. An Enlarged Group can be expected to be better able to protect its interests in the event of negative developments.
Higher attractiveness for highly skilled personnel
The Russian and Ukraine agricultural sectors, particularly the Russian one, are one of the last sectors in the two economies to undergo rationalisation and modernisation. This process is slow and it is accordingly difficult to find qualified specialists, both domestic and foreign, for agricultural companies. Following the Acquisition, the Enlarged Group is expected to become more attractive as an employer and will therefore be able more easily to source qualified specialists.
Statement regarding holdings of interest in Landkom
At the close of business on 19 December, 2011, the latest possible date before this Announcement, neither Alpcot Agro nor any of its decision makers controlled any Landkom shares.
3. Comparison of Alpcot Agro and Landkom Operations in Ukraine
Alpcot Agro | Landkom | |
Total land Ukraine (ha) | 18,800 | 79,230 |
Harvested land Ukraine 2011 (ha) | 13,700 | 50,852 (1) |
Revenue per ha winter wheat 2011 (USD) | 740 (1) | 602 (1) |
Revenue per ha corn 2011 (USD) | 1,751 (1) | 1,329 (1) |
Gross profit per ha winter wheat 2011 (USD) | 167 (1) | 102 (1) |
Gross profit per ha corn 2011 (USD) | 871 (1) | 452 (1) |
Yield winter wheat 2011 (ton/ha) | 4.3 | 3.5 (1) |
Yield winter wheat 2010 (ton/ha) | 2.4 | 2.7 |
Yield corn 2011 (ton/ha) | 8.3 (1) | 6.3 (1) |
Yield corn 2010 (ton/ha) | 6.8 | 5.0 |
Number of employees | 100 | 966 |
Harvested ha per employee | 137 | 53 (1) |
(1) Estimates
Alpcot Agro yields are estimated net yields for 2010 and actual net yields for 2011, whereas all Landkom yields are net harvested yields.
Currency
For currency conversions in this statement, the following exchange rates have been applied (using the closing exchange rate from Reuters for 19 December 2011 being the last practicable date prior to this announcement):
SEK 1: £0.09312 £1: SEK10.7386
SEK1: US$6.9246 US$1: SEK0.1444
4. Pro Forma balance sheet for the Enlarged Group
The unaudited pro forma historical balance sheet set out below has been prepared by Alpcot Agro based on the balance sheets of Alpcot Agro and Landkom as at 30 June 2011. The pro forma information is provided for illustration purposes only to show the relative sizes of Alpcot Agro and Landkom following the impact of the issue of New Alpcot Agro shares in connection with the Acquisition and the proposed Placing. It is neither intended to be an indication of the actual financial position had the Acquisition taken place on 30 June 2011 nor a prediction of the future financial position of the Enlarged Group. The final value of the Consideration shares will be determined in connection with completing the acquisition analysis.
USD thousands | 30/06/2011Alpcot Agro | 30/06/2011Landkom | Combined incl. Share issue |
PP&E | 93,895 | 33,297 | 116,093 |
Land in process of registration | 10,799 | - | 10,799 |
Intangible fixed assets | 4,799 | 151 | 4,950 |
Non-current bio assets | 7,112 | 460 | 7,572 |
Other non-current assets | 8,087 | - | 8,087 |
Current bio assets | 37,904 | 32,727 | 70,631 |
Inventories | 9,661 | 5,076 | 14,737 |
Trade receivables | 22,902 | 6,317 | 29,219 |
Cash | 27,744 | 917 | 48,661 |
Asset held for sale | 975 | - | 975 |
Total assets | 223,879 | 78,945 | 311,725 |
Share capital | 71,693 | 789 | 100,449 |
Share premium | 200,896 | 159,350 | 212,974 |
Reserves | (21,931) | (5,349) | (21,931) |
Retained earnings | (75,104) | (108,343) | (60,750) |
Non-controlling interests | 194 | (161) | 194 |
Interest bearing loans | 27,883 | 15,112 | 42,995 |
Trade payables | 17,926 | 17,297 | 35,223 |
Other liabilities | 2,321 | 250 | 2,571 |
Equity and liabilities | 223,879 | 78,945 | 311,725 |
Key Ratios
Alpcot Agro | Landkom | Combined | |
Issued shares | 99,197,472 | 435,008,935 | 138,985,359 |
Equity per share, USD | 1.77 | 0.11 | 1.66 |
Volume weighted average share price for last 20 trading days, USD | 1.03 | 0.05 | 1.03 |
P/B ratio | 0.58 | 0.46 | 0.62 |
Mark Cap, USD thousands | 101,804 | 21,320 | 142,638 |
Operating working cap, % of assets | 36% | 35% | 41% |
Equity ratio | 79% | 59% | 74% |
Interest bearing debt/equity | 16% | 33% | 19% |
This pro forma has not been audited and has been prepared on the basis of the following assumptions:
- Information extracted from balance sheets of Alpcot Agro and Landkom as at 30 June 2011.
- Alpcot Agro figures are taken from the 30 June 2011 unaudited interim report.
- Landkom figures are estimates based on unaudited management accounts.
- A total of 19,487,887 new Alpcot Agro shares are issued at a price of SEK 7.10 in the Placing.
- A total of 20.3 million New Alpcot Agro shares are issued as consideration for the Acquisition and valued at SEK 7.10 per share.
- Write down of PP&E of Landkom amounting to USD 11 million upon completion of Acquisition.
- Negative goodwill on Acquisition credited directly to reserves.
5. Sensitivity Analysis - Cost per tonne given different gross yields
The table below illustrates expected total production cost per ton following reduction of indirect costs of USD 115 per ha in the Enlarged Group. All amounts are in USD. Note that actual net yield per hectare is estimated at approximately 90 per cent of the corresponding gross yield.
Russia - Winter Wheat (production cost) | |||||||
Total cost per ha | Gross yield (ton/ha) | ||||||
2.5 | 2.75 | 3 | 3.25 | 3.5 | 3.75 | 4 | |
350 | 156 | 141 | 130 | 120 | 111 | 104 | 97 |
400 | 178 | 162 | 148 | 137 | 127 | 119 | 111 |
450 | 200 | 182 | 167 | 154 | 143 | 133 | 125 |
500 | 222 | 202 | 185 | 171 | 159 | 148 | 139 |
550 | 244 | 222 | 204 | 188 | 175 | 163 | 153 |
Russia - Sunflower (production cost) | |||||||
Total cost per ha | Gross yield (ton/ha) | ||||||
1.3 | 1.5 | 1.75 | 2 | 2.25 | 2.5 | 2.75 | |
400 | 356 | 296 | 254 | 222 | 198 | 178 | 162 |
450 | 400 | 333 | 286 | 250 | 222 | 200 | 182 |
500 | 444 | 370 | 317 | 278 | 247 | 222 | 202 |
550 | 489 | 407 | 349 | 306 | 272 | 244 | 222 |
600 | 533 | 444 | 381 | 333 | 296 | 267 | 242 |
Ukraine - Winter wheat (production cost) | |||||||
Total cost per ha | Gross yield (ton/ha) | ||||||
4 | 4.5 | 5 | 5.5 | 6 | 6.5 | 7 | |
775 | 215 | 191 | 172 | 157 | 144 | 132 | 123 |
800 | 222 | 198 | 178 | 162 | 148 | 137 | 127 |
825 | 229 | 204 | 183 | 167 | 153 | 141 | 131 |
850 | 236 | 210 | 189 | 172 | 157 | 145 | 135 |
875 | 243 | 216 | 194 | 177 | 162 | 150 | 139 |
900 | 250 | 222 | 200 | 182 | 167 | 154 | 143 |
Ukraine - Corn (production cost) | |||||||
Total cost per ha | Gross yield (ton/ha) | ||||||
6 | 7 | 8 | 9 | 10 | 11 | 12 | |
950 | 176 | 151 | 132 | 117 | 106 | 96 | 88 |
1,000 | 185 | 159 | 139 | 123 | 111 | 101 | 93 |
1,050 | 194 | 167 | 146 | 130 | 117 | 106 | 97 |
1,100 | 204 | 175 | 153 | 136 | 122 | 111 | 102 |
1,150 | 213 | 183 | 160 | 142 | 128 | 116 | 106 |
IMPORTANT INFORMATION
The information above is not intended for, and may not be distributed to or be published in, directly or indirectly, Australia, Canada, Hong Kong, Japan, New Zeeland, South Africa or the USA, or any other jurisdiction where this would require registrations measures or would constitute a breach of law. The information above does not contain or constitute an invitation or an offer to acquire, subscribe for, sell or otherwise trade in shares or other securities in Alpcot Agro AB (“the securities”). Nor does it constitute a prospectus under the terms in Directive 2003/71/EC. No securities are or will be registered in accordance with the U.S. Securities Act of 1933 (“Securities Act”) or any provincial act in Canada. Nor are or will any securities be registered under any legislation in Australia, Hong Kong, Japan, New Zeeland or South Africa. The securities may therefore not, directly or indirectly, be sold, resold, offered for sale, delivered or spread within or to any of these jurisdictions, or to any person located there at that point of time or resident there, or on account of such person, and further not to or within any other jurisdiction where such measure would violate the laws of the jurisdiction or require registrations measures, other than in accordance with an applicable exemption. A failure to comply with this instruction may result in a violation of the Securities Act or laws applicable in other jurisdictions.
This press release is only being distributed to and is only directed at (i) persons who are outside the United Kingdom or (ii) to investment professionals falling within Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion Order 2005) (the “Order”) or (iii) high net worth companies, and other persons to whom it may lawfully be communicated, falling within Article 49(2)(a) to (d) of the Order (all such persons in (i), (ii) and (iii) above together being referred to as “relevant persons”). The securities are only available to, and any invitation, offer or agreement to subscribe, purchase or otherwise acquire such securities will be engaged in only with, relevant persons. Any person who is not a relevant person should not act or rely on this document or any of its contents.
Pareto Öhman is acting for the Company and no one else in connection with the Issue and will not be responsible to anyone other than the Company for providing the protections afforded to its clients or for providing advice in relation to the Issue and/or any other matter referred to in this announcement. Pareto Öhman accepts no responsibility whatsoever and makes no representation or warranty, express or implied, for the contents of this announcement, including its accuracy, completeness or verification or for any other statement made or purported to be made by it, or on its behalf, in connection with the Issue and nothing in this announcement is, or shall be relied upon as, a promise or representation in this respect, whether as to the past or future. Pareto Öhman accordingly disclaims to the fullest extent permitted by law all and any responsibility and liability whether arising in tort, contract or otherwise which it might otherwise have in respect of this announcement or any such statement.
This press release may contain forward-looking statements that reflect Alpcot Agro AB’s current views with respect to future events and financial and operational performance. Forward-looking statements can be identified by the fact that they do not relate strictly to historic or current facts or by the use of terminology, including, but not limited to, terms such as “may”, “will”, “expects”, “believes”, “anticipates”, “plans”, “intends”, “wants”, “estimates”, “projects”, “targets”, “forecasts”,” seeks”, “aims”, “could”, “should” or, in each case, the negative of such terms, and other variations on such terms or comparable terminology. These statements are solely based on the circumstances as at the date on which they are made and Alpcot Agro AB undertakes no obligation to publicly update or revise any such information, whether due to new information, new conditions or other circumstances. Though Alpcot Agro AB considers the statements fair, no undertakings or warranties are provided that they will be realized or shown to be correct. Thus, such statements must not be unduly relied on.