Guy Norton in Zagreb -

Cool-headed business logic looks set to finally triumph over hot-blooded political passion on June 27, when Croatian conglomerate Agrokor will finally complete its long-awaited acquisition of Slovenia’s leading supermarket chain Mercator.

If, as expected, Agrokor secures the sign-off on its purchase of an initial 53% stake in Mercator, it will come as a huge relief to Agrokor’s owner Ivica Todoric, whose near decade-long pursuit of the prized Slovenian retailing asset has consistently been frustrated by parochial political concerns.

Under the final terms of deal, which was provisionally agreed upon a year ago but has since been heavily revised, Agrokor is set to pay a total consideration of around €550m to take full control of Mercator, Slovenia’s largest corporate and a major player on the country’s economic stage, employing over 10,000 workers

Agrokor, Croatia’s leading privately owned firm, will pay Mercator’s vendors €86 per share or the equivalent of €172m for a 53% stake in the grocer. That’s much lower than the €120 per share valuation initially agreed upon in June 2013 and a fraction of the €210 per share price tag that Agrokor was willing to pay in 2011, when its advances were rejected by the Slovenian authorities in Ljubljana on competition grounds.

Meanwhile, under the provisions of Slovenian takeover law, Agrokor will also have to publish a public tender for the remaining shares at the same price or better, which values the whole of Mercator at €325m. To compensate for the lower-than-initially agreed share price, Agrokor has agreed to sweeten the transaction by providing Mercator with €225m in funding, with €200m to be used to pay down debt and €25m for working capital purposes. 

Regional rivalry

As is so often the case in the former Yugoslavia, local political concerns have inevitably conspired to overshadow landmark regional business developments. That’s certainly been the case with Agrokor’s Mercator acquisition, with increasing political posturing in Slovenia in recent weeks threatening to stymie the creation of a regional retail champion which will be able to contend with the increasing competition from global retailing titans in the region.

In recent weeks there had been a rising tide of opposition in Slovenia to the transaction, based on fears that Agrokor’s acquisition of Mercator would lead to the loss of jobs and revenue for both Mercator’s employees and its suppliers in Slovenia. The growing resistance to the transaction has been given added spice by the fast-approaching July 13 parliamentary elections in Slovenia, with the proposed sale of Mercator becoming a central theme of the political campaign ahead of the popular vote.  

Several leading members of Slovenia's outgoing centre-left coalition government had expressed their strong disapproval of Agrokor’s takeover, while local trade unions had also demanded that the authorities in Ljubljana veto the proposed transaction. Those opposing the sale include Dejan Zidan, leader of the Social Democrats party and agriculture minister in the current administration, who has argued that Agrokor’s takeover of Mercator could jeopardise the financial fortunes of the country’s farming industry, citing concerns that Agrokor as a major food producer in its own right, will replace home-grown Slovenian products on Mercator's shelves with merchandise produced in Croatia, Serbia and Bosnia-Herzegovina.

The serving foreign minister, Karl Erjavec, chief of the DeSUS pensioners' party, has also expressed similar concerns, with Slovenian news agency STA quoting him as telling a recent cabinet session: "It is clear that Agrokor lacks the backing of serious capital while there is also data which shows that the sale of Mercator would be a major blow to... Slovenia's food industry."

The growing wave of opposition to the Mercator sale prompted the government to request that the sellers of the majority stake in Mercator – a consortium of local and foreign banks alongside a number of Slovenian corporates – "lead all procedures with due care and diligence and to consider in their decision aspects of employment, relations in the food chain and other factors important to the Slovenian economy," STA reported.

Meanwhile a number of labour movement organisations, including the Retail Trade Union, the Agriculture and Food Industry Trade Union, as well as the Farmers' Trade Union claimed that selling Mercator to the "financially weaker" and "strategically inappropriate" Agrokor – for which read highly leveraged and foreign – would be a grave mistake.

Although the state does not have any direct stake in Mercator, it does own equity holdings in a number of the members of the selling consortium, including leading Slovenian banks NLB and NKBM, and the Pivovarna Lasko drinks company. Alongside calls for the sellers to consider national interests when agreeing to dispose of their stakes in Mercator, the government also commissioned the Slovenia Sovereign Holding (SSH), the recently established public sector agency that manages state business interests, to closely monitor the sale process and inform it of any concerns that the acquisition could harm Slovenia’s long-term economic prospects.

But with fears that political interference in the Mercator sale could jeopardise economically vital privatisations in Slovenia and deter foreign investment in the country, outgoing Prime Minister Alenka Bratusek on a June 24 visit to NLB, Slovenia’s leading lender that was nationalised last December to save it from collapse, sounded a much more conciliatory note about the proposed sale. She told local media that NLB as a long-term lender and business partner of Mercator would continue to support the supermarket chain regardless of any change in ownership and insisted that the Slovenian government had done everything in its power to ensure that under Agrokor’s ownership Mercator would remain a flagship brand for the Slovenian economy and a responsible employer. 

So it seems that, barring a last-minute hitch, after years of often tortuous negotiations Agrokor is poised to write the final chapter in a long-running saga and will now finally be able to ring up Mercator on its shopping bill.