Setting the Terms
7
Mercator wants an agreement with the consortium of banks and beverage group Laško that are selling their combined 52 percent stake in the retailer, as well as an agreement with the prospective buyer, Croatian food and retail group Agrokor backed by the European Bank for Reconstruction and Development (EBRD), the International Financial Corporation (IFC) and One Equity Partners. Stressing that Agrokor is its biggest rival in the region, Mercator wrote in a press release that the signing of the two agreements was a condition for Mercator's support to the sale, which is still in the negotiations phase.
The result is that discussions with Agrokor are now frozen. The management of Mercator is insisting will not back the sale of a majority stake to the Croatian firm and is not willing to fully open its books unless it obtains a guarantee that the EBRD and IFC will be involved in the deal.
Firm assurances
In fact, there have been some assurances that the EBRD, IFC and One Equity Partners will finance the takeover and be involved in the management of Mercator after the deal is completed. But the management board is concerned the institutions have not taken any binding decisions to be involved in the next stage of the transaction. Since the management believes that Agrokor as the sole buyer cannot "vouch for financial stability after the transaction", it is proposing three possible alternative approaches.
One is getting a formal guarantee by EBRD or IFC of their direct, immediate involvement in negotiations to reach an agreement aimed at protecting the interests of Mercator. The second alternative is that all the parties wait until Agrokor carries out a limited due diligence on the basis of additional information published by Mercator. The EBRD and/or IFC would then be directly included in the negotiations on the protection of Mercator's interests and the conclusion of appropriate agreements. If the European Bank for Reconstruction and Development and the International Financial Corporation decline such involvement, the management proposes that the agreement aimed at protecting Mercator's interests be signed by at least one reputable and solid financial institution, for example a bank which is currently an important shareholder of Mercator and wants to sell its stake.
Alternatives
It is, as always when it comes to the sale of Mercator, a confusing and controversial situation. While most politicians are trying to stay out of the matter, some are still very vocal in opposing the sale of Slovenia's retail giant to its Croatian competitor. The outgoing minister of agriculture, Dejan Židan, is not tiring of his persistent warnings that the planned takeover would have serious consequences for the Slovenian food and drinks industry. The trade union of retail workers has also supported the management of Mercator in its opposition to the sale, voicing concern about a loss of jobs, and the future of the company and Slovenian food industry. The union has now gone as far as to announce industrial action against the NLB bank, which has said it plans to carry on with the sale of its 10 percent stake in Mercator.
Media outlets are showing no fear when it comes to wading into the debate. While daily Dnevnik supports the management's decision, Finance argues the board is doing everything within its power to sabotage the sale. The paper believes the deal would in fact be beneficial for Slovenia's food and drink manufacturers, forcing them to become more competitive and to lower what Finance calls their "extortionate" prices.
Yet a report in the business daily suggests that those in power at Mercator are busy hatching an alternative plan. Finance understands that the idea has been floated of the state-run KAD fund buying up to a 25 percent stake in the grocer. The money would come from the budgetary funds initially earmarked for subscription for fresh shares to the NLB bank. Based on Agrokor's non-binding bid, Finance estimates that KAD would need up to EUR 208m to buy the stake, while EUR 243.4m is available in the budget item. KAD sold its stake in Mercator in 2005 to Istrabenz, which has since declared insolvency and been subject to court-mandated debt restructuring. KAD and Agrokor have refused to comment on the speculation, but Finance cites sources close to the Croatian company in saying that Agrokor has already received an invitation for a meeting with KAD.
The three-week sales negotiations between Mercator and Agrokor were due to finish by 2 December. And yet the soap opera rolls on with no end currently in sight.