Mercator Sale Helps Stabilize Slovenian Banks Amid Crisis

The sale of Mercator Poslovni Sistem d.d. to Croatia’s Agrokor d.d. will inject needed cash into Slovenian banks, helping stabilize the country’s financial system as it scrambles to avert a bailout, the sellers said.

“A successful sale of Mercator would increase capital inflow to its shareholders, including the financial institutions that need additional capital,” a sellers group said by e-mail on June 14 through Ljubljana-based PR firm Futura. “This would help stabilize Slovenia’s banking system in accordance with European Union demands.”

Slovenia’s two biggest banks, Nova Ljubljanska Banka d.d. and Nova Kreditna Banka Maribor d.d., are among shareholders that on June 14 sold a 53 percent stake in the Balkans’ largest retailer to Zagreb-based Agrokor for 240 million euros ($320 million). Slovenia is working to avoid becoming the six euro-area country to require international aid with a 900 million-euro capital increase to banks as the European Commission warns more cash may be needed.

The “transparent and competitive procedure” of the transaction will also boost Slovenia’s image among international investors, the sellers said. Premier Alenka Bratusek said on May 5 that the ruling coalition wants to proceed with the sale of state-owned companies, including Nova Kreditna.

Previous Attempt

Agrokor, the largest company by revenue in the former Yugoslav region, agreed to pay 120 euros a share for its stake in Mercator, about half what it offered in its previous attempt to buy its biggest rival in the fall of 2011, before the crisis escalated in Slovenia.

The transaction will help lower Mercator’s debt burden of 1.1 billion euros, Chief Executive Officer Toni Balazic told reporters today in the Slovenian capital, Ljubljana.

The sale agreement is the first step in consolidating the company’s ownership, Balazic said today. Mercator will co-operate in creating the biggest retail chain in the region, he said. The company will keep its brand in regions where it’s dominant and its headquarters will remain in Ljubljana, according to Balazic.

Seventy-three percent of respondents said they are against the sale of the Slovenian retailer to its Croatian rival, while 21 percent said they support the transaction, according to a Delo Stik poll carried out among 404 people between June 11-12 and published in Ljubljana-based newspaper Delo. In the same poll, 52 percent said they endorse the Slovenian government’s push to sell state-owned assets.

Closely held Agrokor has sought to buy Mercator for years to expand into its neighbor, an EU member since 2004, and the rest of the Balkans. Croatia will join the bloc on July 1.

‘Best News’

The acquisition is expected to create the largest retail chain in central and eastern Europe, excluding Russia, with annual revenue of as much as 7 billion euros. It would also employ about 60,000 people and have about 2,600 stores.

“Agrokor’s expansion into the region is the best piece of news for Croatia before the EU entry,” Viktor Vresnik, an economic analyst at Europa Press Holding, Croatia’s largest newspaper publisher, said by phone. “It also coincides with probably the most difficult moment in Slovenia’s history as an independent state.”

Croatia is struggling to emerge from a four-year recession, as 2012 foreign direct investment shrank to almost a fifth of the $4.2 billion it recorded in 2008. The Adriatic nation stands to receive 10 billion euros in EU funds through 2020, which the government of Prime Minister Zoran Milanovic plans to channel into infrastructure, energy and tourism.

Approval Needed

Agrokor still needs regulatory approval from all the relevant countries to complete the deal, which is also subject to a “successful restructuring of Mercator’s debt,” Agrokor said in a statement on June 14. Completion is expected by the end of the year, the company said, adding Agrokor would then be obliged to submit an offer for the remainder of the stock.

Croatian and Slovenian media reported earlier this year that Agrokor plans to finance the purchase by boosting its capital instead of borrowing funds. Agrokor spokeswoman Anja Linic wouldn’t comment on the plans when reached by phone.

Gilles Mettetal, the European Bank for Reconstruction and Development’s representative on Agrokor’s supervisory board, said the bank “will continue to have a favorable view of Agrokor’s development,” according to the statement e-mailed by Agrokor. The bank holds 4.37 percent of Agrokor’s stock.

Mercator’s shares last week surged the most in almost five years on news of the impending sale, rising 11.8 percent on June 14 to 105 euros per share. Today, Mercator reversed earlier gains, dropping 1.90 euros, or 1.8 percent to close at 103.15 euros in Ljubljana, according to data compiled by Bloomberg.

Mercator Race

“There are still some laps and hurdles with a water jump for 3,000 meters, a steeplechase runner under the name of Agrokor to finish the race called Mercator,” Jernej Kozlevcar, who helps manage 480 million euros at Triglav Asset Management Co. in Ljubljana, said in an e-mail today. “Today, some of the race’s spectators obviously saw some high hurdles, too high for Agrokor to jump over, and decided to sell shares. Despite the signed agreement there are still crucial laps to run for a successful finish of the race,” he said.

The company posted its first full-year loss in 2012, reporting a net loss of 104 million euros, followed by a first-quarter loss this year, as the economic crisis in Slovenia and the region continued to hurt sales.

While some of Agrokor’s subsidiaries, such as its retail arm Konzum d.d., are publicly traded on the Zagreb Stock Exchange, the holding company is not listed and founder and Chairman Ivica Todoric owns more than 90 percent. Agrokor releases its results only to investors. Todoric in February said the 2012 results were “excellent.”

The bid was the fifth attempt by Agrokor to buy its biggest competitor in the Balkans. It last offered 221 euros per Mercator share in 2011, valuing the retailer at 832 million euros, before abandoning the bid in early 2012 amid opposition from Slovenian politicians.

Before it's here, it's on the Bloomberg Terminal.