Slovenia Allows Agrokor to Buy Biggest Balkan Retail Chain

Agrokor d.d. of Croatia got regulatory approval to take over the largest retail chain in the Balkans, Mercator Poslovni Sistem d.d., in a sale neighboring Slovenia will use to help its debt-laden banks.

Zagreb-based Agrokor signed an agreement with Mercator’s owners in June to buy a 53 percent stake in the Slovenian retailer for 240 million euros ($327 million), or 120 euros a share. Mercator’s owners are drinks company Pivovarna Lasko d.d. and Slovenian state-controlled banks Nova Ljubljanska Banka d.d. and Nova Kreditna Banka Maribor d.d.

“We have studied if the Mercator sale would hurt the retail market here and have concluded that wouldn’t be the case and have no objections to this transaction,” Slovenian competition regulator head Andrej Krasek said at a news conference in the capital Ljubljana today.

Agrokor’s takeover bid is its fifth to buy its biggest competitor in the Balkans. Croatia’s largest company, with interests in food production, retail and press distribution, 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.

The acquisition will to create one of the biggest companies in the region, with annual revenue of as much as 7 billion euros, Agrokor said on its website. It would employ about 60,000 people and have about 2,600 stores.

Shares Slump

Mercator shares slumped to the lowest level in more than 11 years on speculation the Croatian investor will fail to get financing to close the takeover. The stock closed down 6.2 percent at 75 euros and volume amounted to 513 percent of the three-month average, data compiled by Bloomberg shows.

“Investors for many reasons aren’t ready to bet” that this takeover will succeed, Saso Stanovnik, an analyst at Alta Invest in Ljubljana, said in an e-mail today. “The reasons are past experience with the Mercator sale and stories in local media about a lack of financing for the deal.”

Agrokor spokeswoman Anja Linic declined to comment on the Mercator takeover when contacted by phone today.

Slovenia plans to use some of the sale’s proceeds to inject much needed cash into its banks, which are burdened with bad loans equaling about a fifth of the Adriatic state’s annual output. It will also show the country is ready to push forward with a plan to sell 15 state-owned companies including Mercator shareholder Nova Kreditna Banka Maribor d.d. and phone company Telekom Slovenije.

Bank Repair

Prime Minister Alenka Bratusek’s government is awaiting the results of stress tests and asset quality audits of the lenders due to be published on Dec. 13. The government has earmarked as much as 1.4 billion euros to repair the banks, while Fitch Ratings Ltd. and some economists have said the bill may cost three times as much or more.

The “240 million euros will go toward covering the big ticket cost of bank recapitalization, which could be anywhere from 1.2 billion euros, or 3.4% of GDP, to 5 billion,” Tim Ash, chief emerging markets economist at Standard Bank Group Ltd. in London, said by e-mail today. “The general assumptions/hope is that this first wave of privatizations could perhaps generate around EUR1bn.”

Mercator employed 23,157 people at the end of September and operates about 1,600 units in the Balkan states. The retailer narrowed its nine-month loss to 17.6 million euros from 22 million euros a year earlier with revenue declining 3.6 percent to 2 billion euros.

The Croatian company plans to increase Mercator’s capital and may sell Mercator shares in a public offering next year while merging retail operations into Adria Retail that will be completed by the end of 2014, Finance newspaper reported in June, citing Agrokor President Ivica Todoric.

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