Is Jamnica for Sale?

For years, I have been wondering if Ivica Todorić is banging his head against the wall when he thinks that by selling just one of his larger companies, specifically Jamnica, he could have prevented Agrokor’s bankruptcy. Todorić had all the necessary traits of a skilled and successful entrepreneur, except for one – he did not perceive his companies rationally, as objects that can be sold when they are in trouble, but emotionally, almost like his own children.

From a very reliable source, Lider has learned that, just two weeks after Fortenova rationally signed a contract for the sale of Zvijezda to the Osijek Žito group, due diligence on Jamnica has already begun. We requested official confirmation of this information from Fortenova, and the response was: ‘The information you have is not accurate.’

Not a Turkish Force for Sale

However, considering that our sources confirmed several months ago that Žito would take over Zvijezda, which we did not publish while waiting for official confirmation of this information from either Fortenova or Žito, this time we decided not to wait but to present what we heard from a reliable source. Thus, the intention to sell Jamnica exists because a potential, currently unnamed buyer has entered the due diligence process.

How the negotiations will end, we can only speculate. More or less reliably, we know that Fortenova, as in previous major divestment processes, has focused on finding a buyer ‘who will, in addition to paying a fair price, contribute maximally to further development and preservation of employment, tradition, and market position.’ This formulation, in fact, Fortenova also used in the sale of its agricultural segment to Podravka and in the sale of Zvijezda.

From this pattern, it is not difficult to detect that only three potential buyers fit into it for Jamnica: Coca-Cola HBC Croatia, Atlantic Group, and Adris Group.

What does not fit the pattern with Jamnica is the reason for the sale of this company, one of only three remaining flagship companies of Fortenova, which, according to key performance indicators, is the most successful. Starting with Ledo, four years ago, and up to Zvijezda two weeks ago, the goal of all sales of Fortenova’s companies has been to obtain urgently needed cash that could not be raised on the financial market. Of course, we cannot precisely know what Fortenova’s exact financial situation is, but with elementary school math, we come to the conclusion that this situation is certainly not hopeless enough to warrant selling Jamnica.

According to the last contract with HPS Investment Partners, Fortenova is obligated to pay the American fund an amount of 1.2 billion euros by the end of March next year. Part of that debt, amounting to 300 million euros, Fortenova has already paid in the first quarter of this year, after receiving 335 million from Podravka for the agricultural segment. The next 550 million euros was settled on October 1 from the borrowing that Fortenova received for this purpose from Zagrebačka banka and UniCredit Group, which means that with these two payments, 850 million euros of debt has been resolved.

During this year, Fortenova sold Badel 1862 for a publicly unknown amount, Agrolaguna and Vinarija Novigrad, for about 40 million euros, the Slovenian company Mercator-Emba to the Austrian Agrana, and finally Zvijezda for an estimated hundred million euros. Let’s add that Fortenova achieved 216 million euros in net profit last year, so we come to the conclusion that it has collected quite enough from the mentioned sources to pay HPS.

And we could also add a number of transactions from the sale of Fortenova’s real estate, including about thirty million euros from the sale of land to GIP Pionir in Zagreb’s Borongaj, which belonged to Jamnica.

PIK Vrbovec Will Also Be Next

The sale of Jamnica does not fit with what Damir Spudić, a member of the Management Board and Fortenova’s Executive Director for Finance, stated last summer when signing the contract with UniCredit:

– We have set clear strategic frameworks for the next development period, in which the focus will be on retail, food and beverage production, and distribution. Thanks to more favorable financing conditions, we will be able to support these activities with new investments significantly more than before.

However, with the sale of Jamnica, food and beverage production within Fortenova would actually be reduced to PIK Vrbovec, which would completely shift the strategic focus exclusively to retail and distribution. In other words, very, very soon, the Vrbovec meat industry would find itself in a situation where preparations for a change of ownership would also be made.

It is therefore possible that Fortenova’s primary motive for selling Jamnica did not come from within, but from outside. That is, someone, most likely one of the three mentioned potential acquirers, has piqued Pavle Vujnovac‘s interest, Fortenova’s majority owner, with their letter of intent to rationally and without unnecessary emotions reconsider the justification of his strategic intentions. Among the three remaining flagship companies of Fortenova, Jamnica is the most successful according to key business indicators for the past year. Unlike Konzum and PIK Vrbovec, whose net profit margins are 2.51 percent and 2.05 percent respectively, Jamnica’s profit margin last year was 10.32 percent.

Although its total revenue was the smallest among this trio, revenue per employee was the highest (233 thousand euros), as was net profit per employee (24 thousand euros). With total revenue of 230 million euros, Jamnica’s EBITDA amounted to 50 million euros, Konzum’s was, however, four times higher, but Konzum also had nine times higher total revenue.

Denial of Denial

– Jamnica is a company that deserves attention with its portfolio and importance in the wider region; however, Atlantic Group does not consider participating in any potential process of purchasing Jamnica if Fortenova were to initiate such a process – we were told from Atlantic in response to our inquiry about whether they are considering the possibility of participating in the acquisition process of Jamnica, although for many reasons, that company seems to us to be the most natural interested party for it.

First of all, Atlantic’s majority owner Emil Tedeschi has publicly stated several times that Atlantic is financially and organizationally ready for a major transformational acquisition, the last one being in 2010 when it acquired Droga Kolinska.

Secondly, Atlantic has 14 years of experience in the production and distribution of bottled water (brands Kala and Kalnička), from which it strategically withdrew a year ago to reposition production capacities towards products with higher added value and better profitability.

Thirdly, Atlantic Group, with its Cedevita and its brands, is one of the leading players in the non-alcoholic beverage market. Its acquisition of Jamnica would be a perfect response to all three mentioned moments.

The denial of any potential interest in Jamnica also came from Rovinj: – Adris Group does not consider such a possibility. We are completely focused on the development of our existing businesses.

However, as in the case of Atlantic, it was overly optimistic to expect that Adris would confirm its interest. We know well that no one discloses such information to the public until the purchase agreement is signed, but, well – we have to ask. And that Adris could also find solutions to some of its old problems through the acquisition of Jamnica – it could!

With total claims of about 185 million euros, Adris was the largest non-banking creditor of Agrokor and one of Agrokor’s creditors who did not support the creditors’ settlement, considering it unfair. It is not known whether in the meantime, through legal disputes and other legal means, Adris managed to collect part of the debt, but it is known that it is still in court proceedings. To maintain at least minimal influence in Fortenova, Adris has also remained in its ownership structure, as one of about 80 minority shareholders who together hold a total of 6.22 percent ownership stake after Vujnovac’s company Open Pass took over 93.78 percent of the ownership stake in Fortenova last year.

Acquiring Jamnica while simultaneously offsetting debt would be a fair solution for Adris, especially since at that time, when it lent money to Agrokor, the pledge on 75.83 percent of Jamnica’s shares was one of the strongest guarantees that Adris received. For Vujnovac, it would be the end of the battle with Adris’s persistent lawyers.

(Un)significant Coca-Cola Silence

By the time this issue of Lider was concluded, we had not received any response only from Coca-Cola, which may be significant. We received neither confirmation nor denial, but that will not prevent us from explaining why that company could again (or still) be interested in acquiring Jamnica.

At the beginning of 2017, just a few months before Agrokor would go bankrupt, Todorić had a Coca-Cola offer on the table for the acquisition of Jamnica worth 500 million euros, which was in line with the then industry average of 9.63 x EBITDA for the non-alcoholic beverage sector in Western Europe. Allegedly, Coca-Cola raised its offer during negotiations to 750 million euros, but Todorić insisted on 800 to 900 million. While negotiations were ongoing, the scandal with Agrokor’s over-indebtedness had already flared up, so Coca-Cola lowered its offer to 450 million, at which point the negotiations failed. And then Agrokor collapsed.

In the meantime, trends in Europe have somewhat changed and show that the peak demand for bottled water has passed and that the water market is quite saturated. About two years ago, Caper, a consulting firm specializing in the M&A market (mergers and acquisitions), estimated that Jamnica could achieve a price range between 350 and 420 million euros. Even if the multiplication factor of 9.63 x EBITDA remained until now, according to last year’s business results, Jamnica would currently be worth about as much as Coca-Cola originally offered for it at the beginning of 2017.

According to achieved revenues, as well as shares in the Croatian market of refreshing beverages and bottled water, Jamnica and Coca-Cola are almost equal. Coca-Cola is slightly ahead with a market share of 45.5 percent, one percentage point higher than Jamnica. Coca-Cola, it goes without saying, has strong brands, but it does not have what Jamnica has – four concessions for capturing and extracting first-class water, two in the areas of Jastrebarsko and Pisarovina, where the company’s headquarters was moved from Borongaj this winter. Coca-Cola had two water concessions in Budinšćina (Bistra) until 2015, and since then it has had none. And as the leading producer of refreshing beverages, it would certainly benefit from them.

Rational Business Decision

And Fortenova would also benefit nicely from the money from the sale. It could use it to refinance debt to UniCredit and Zagrebačka banka or to upgrade all those numerous retail outlets that are crying out for thorough renovation. After all, even after the sale of Zvijezda, it is clear that Fortenova’s strategic focus will be directed solely towards trade, which would, to be honest, be a completely rational business decision.