Mercator Suppliers Fear Takeover

The suppliers argue the sale of Mercator to Croatia's conglomerate Agrokor, its biggest rival in the region, would be "reckless and unacceptable". They insist that the retailer should remain in "Slovenian hands".

A majority stake in Mercator is being sold by a consortium including beverage company Pivovarna Lasko and several banks, among them NLB, of which the protesters demanded to stop the sale.

They listed reasons against the sale in a letter addressed to the management of NLB, outgoing PM Borut Pahor and the prospective PM-designate Zoran Jankovic.

"Mercator buys in all of our fruit and vegetables. Thousands of hectares of Slovenian land are planted and sown in the expectation that the produce will be bought in by Mercator…Mercator has always bought up all the goods on offer. It has always demanded only first-rate goods with which it has supplied its buyers."

They fear that all this can change in case of the sale, that Slovenian store shelves will be flooded with foreign goods of obscure origin, while thousands of hectares of land will go unworked as a consequence of which Slovenia will become dependant on imported food and thousands of jobs could be lost.

To demonstrate their fears, the farmers, who sell 80% of their merchandise to Mercator, brought along crates of vegetables and candles in a symbolic gesture warning against the future they may face.

"I'm afraid Slovenian farmers will face a slow decline if Mercator ends in Croatian hands," vegetable grower Alenka Stular said, adding that Slovenian farmers were too small to compete with Croatian rivals.

The suppliers also argue that Mercator offers the shortest payment deadlines in Europe and that many farms and companies depend on it.

The daily Dnevnik quotes data from Agrokor's balance sheets quoted showing that the Croatian conglomerate is settling its dues to business partners in 150 days on average, while Mercator's suppliers wait an average of about 70 days to get paid.

The paper has calculated that in the case of the takeover, the suppliers would need to secure some EUR 450m in extra liquidity, which means an extra EUR 27m in interest paid a year.

The paper cites executives who claim that such a radical change in payment terms would exert enormous pressure on the Slovenian food industry and that many companies would be forced to shut down.

The 15 biggest Slovenian food groups generate EUR 2bn in annual revenues, with data for the end of 2010 showing around EUR 400m worth of claims to buyers, mainly retailers.

Data from the Finance Ministry show that produce by Slovenian farmers and food industry prevail among food products on Mercator store shelves. This year, Mercator will sell an estimated EUR 465m worth of home-grown food and home-made food products, or nearly a third of the total of turnover in Slovenian food products.

Mercator sells about EUR 150m worth or 85-95% of Slovenian-made beverages, 80-90% of meat and meat-products, 65-75% of dairy products, 70-80% of bread and pasta products and 50-60% of fruit and vegetables grown in Slovenia.

The suppliers' protest comes after the news broke that the contract on the sale of a 52.1% in Mercator to Agrokor could be signed as early as this Wednesday.

A draft contract obtained by the STA shows that Agrokor has consented to accept several of Mercator's demands for safeguards, but that it would be only prepared to pay up to EUR 20m for possible breach of contract and potential damages resulting from it.

Secretary-general of NLB Samo Nucic, who accepted the letter suppliers addressed to the management of the bank, said the supervisors would discuss their grievances as they review the progress in the sale of Mercator on Tuesday.

The official described the protest as a "rather peculiar way of exerting pressure on the bank", noting that the sale was part of the bank's divestment strategy.

A protest against the sale has also been announced by trade unions for Tuesday.

The Finance Ministry said last week that Slovenia would oppose the financing of a "hostile takeover" by the European Bank for Reconstruction and Development as the state had an obligation to "defend and keep its strategic position".

At 43% Mercator has the highest market share in Slovenia's food retail industry, operating 1,521 stores and employing a total of 23,480 staff.

The group generated EUR 2.17bn in sales revenues in the first nine months of the year, up 6.7% on the same period last year, while net profit was down 3.2% to EUR 27m.