The agribusiness sector chalked up another potential deal in its late-year flurry of tie-ups when Alpcot Agro agreed to buy fellow Black Sea farm operator Landkom International – at a discount.

Alpcot, which controls 200,000 hectares of farmland in Russia and Ukraine, sealed a deal to buy Landkom, which controls 79,000 hectares, to create what it termed a "global top player", with an area under management bigger than Luxembourg.

Landkom said the combined group, whose land actually under cultivation would amount to 155,000 hectares, would have a "land bank and planted land to rival the largest operators in the global market".

The takeover would enable Landkom "to deliver the maximum revenue for the commodities produce" besides improving purchasing power.

"Weather risk will be spread across a wider region which will reduce the risk to the enlarged group of serious weather events."

Furthermore, the combined company "will be an attractive, more liquid vehicle for investors seeking to benefit from the long term prospects of agricultural investment in Eastern Europe".

'Weak cash flow'

However, Landkom investors will be forced to take a haircut, of about 14%, rather than gain a premium to accept the all-share deal, which values their shares at 2.69p at Tuesday's closing prices.

Landkom's London-listed stock closed at 3.125p, before the takeover was unveiled.

Indeed, a takeover at the proposed terms threatens to see its investors – which include celebrated hedge fund manager Crispin Odey - swap out of its shares at the lowest price since the group was listed four years ago.

The group raised caution over its prospects should the deal fail, saying that its cash flow "remains weak", and that it required a refinancing which there was "no certainty" would be completed.

Furthermore, Landkom was poised to unveil another full year loss, even at the level of earnings before interest, tax, depreciation and amortisation (ebitda) after weather hiccups to its rapeseed harvest, which prompted a profits warning in September.

Indeed, Neil Balfour, the company's chairman, said then that the group was "now reviewing strategic options".

Cash needs

Mr Balfour said on Tuesday: "Our ambition of becoming a substantial producer and processor of agricultural commodities for the global food and biofuel markets has become increasingly difficult to fulfil without access to substantial additional working capital."

The Alpcot Agro deals also includes a $20m placement which will be used to boost cashflow and help payback Amako, a Ukraine machinery group which has provided financing to Landkom, and which has close ties with the farm operator's chief executive, VItaliy Skotsyk.

Joakim Ollen, the Alpcot Agro chairman, said that the tie-up would encourage "better use of our management resources in Ukraine, more efficient production units and a better balance between our operations in Russia and Ukraine", terming it "exceptionally positive for future profitability".

Landkom shareholders accounting for 44% of the stock, including Mr Odey, have pledged or indicated to back the deal.

The proposal is the latest in an agribusiness consolidation wave, which includes a bid battle for Kvarneland, the Norwegian farm equipment group.

Japan's Kubota kicked off last week, with China's Chery Heavy Industries and US-based CNH Global, the maker of New Holland tractors, unveiling rival offers on on Monday.
 

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