Russian meat and feed producer Cherkizovo has agreed to acquire domestic grain producer Napko for around RUB5bn ($88m).
Cherkizovo will also assume the net debt of the grain producer which stood at RUB751m ($13m) as of 31 March 2017.
The acquisition will include Napko’s agricultural land of 147,000 hectares spread across the Lipetsk, Penza and Tambov regions, which are considered to be strategically important areas for the Cherkizovo Group.
Last year, Napko grain production output was 250,000 tons. Following its acquisition, Cherkziovo Group would expand its total operating land bank to 287,000 hectares.
The land banks of Napko and Cherkziovo are complementary to each other in terms of geography and the varieties of crops cultivated like wheat, corn, peas and sunflower.
Cherkizovo Group CEO Sergey Mikhailov said: “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% in the next few years from 30% at the end of 2016.”
Cherkziovo Group will also own the supporting production infrastructure as part of the transaction, which will be utilized for land cultivation and grain storage.
The acquisition is expected to cut down Cherkziovo’s exposure to market volatility for grain. Particularly, it will help in tackling potential grain shortages, local currency volatility and changes to pricing policies of grain suppliers.
Cherkziovo will integrate all the acquired assets into its grain farming segment. Apart from that, the current management team and employees of Napko will be retained after the closing of the deal.
Both the companies have been associated with each other before with Napko supplying about 9-11% of its grain every year to the Cherkizovo Group.
The acquisition has been approved by the board of Cherkizovo and is expected to be closed in one or two months of time.
