May 16, 2011

OJSC Cherkizovo Group (LSE: CHE) one of Russia's leading integrated and diversified meat producers announces that it has completed the transaction to acquire 100% of Mosselprom.   

Mosselprom is a large, diversified vertically-integrated agro-industrial holding company, and the transaction is fully consistent with Cherkizovo Group’s strategy of dynamic development. The transaction has been approved by the Russian anti-monopoly authorities.  

The inclusion of this large producer into the Group brings one of the best known Russian brands to Cherkizovo’s consumer portfolio, significantly increasing the scope of the Group’s activities.  The transaction will strengthen Cherkizovo’s position in the high-margin Moscow region market and will also increase Cherkizovo’s market share in Russia’s poultry segment (in 2010 Cherkizovo Group had 7% of the market and Mosselprom had 2%)[1].  

Mosselprom is a multi-industrial agro holding, that comprises poultry production and feed production, as well as land cultivation and cropping. 

The following assets of Mosselprom will be included in Cherkizovo Group’s structure: 

Poultry segment - 4 poultry factories for broiler breeding – production in 2010 was approximately 56,500 tonnes of sellable weight (67,000 tonnes of live weight poultry meat, total installed capacity is 67,000 of sellable weight); 3 incubation facilities with total annual capacity of 68 mln eggs per year; and 3 slaughter facilities with the capacity to process 215 000 heads per day. The factories have implemented HACCP system and comply with European Union quality requirements. 

Pork segment – a state-of-the-art pork complex with annual production in 2010 of approximately 8,700 tonnes of live-weight (total annual capacity of 12 500 tonnes of live weight pork).  

Feed production– a feed production facility with a capacity of 150,000 tonnes of fodder, including an elevator with a capacity of 60 000 tonnes  

Land and cropping – an operational land bank of 27,500 hectares and grain storage facilities with an overall storage capacity of more than 45 000 tonnes  

Trading company involved in the selling of poultry meat and processed meat products.  

Terms of transaction 

The transaction is based on an enterprise value of $252.9 mln for Mosselprom, comprising $183.8 mln of debt and $69.1 mln of equity. Cherkizovo Group will assume the acquired company’s debt, which is mostly long-term and subsidized. Of the equity, $27.0 mln will be financed through an additional ordinary share issue as previously announced, and the remaining $42.1 mln has been paid in cash from the Group’s own funds.

The additional ordinary share issue is distributed through closed subscription, with over 50% of the issued shares subject to a lock-up of 12 months.  

UBS acted as the sole financial advisor for Cherkizovo Group. Due diligence was carried out by Deloitte and Touche CIS. Cleary, Gottlieb, Steen and Hamilton LLC acted as legal consultants on the deal. 

Commenting on the transaction Sergey Mikhailov, CEO of Cherkizovo Group, said:  

«We are delighted to be announcing this transaction, which once again demonstrates our commitment to the consolidation of the Russian market. This transaction underlines our strategic focus on both the acquisition of large companies, as well as separate production sites. The transaction to acquire Mosselprom is one of the most significant steps that we have taken in the development of our rapidly growing business, and it will make a profound contribution to the Group’s growth in the years to come, as already in 2011 poultry production is expected to increase by 50% compared to 2010 levels. Together with existing projects to increase capacity, we will be able to strengthen our leading positions in the poultry market and further increase production capacity in our high-margin pork segment. Moreover, we expect to strengthen our dominant position on the lucrative Moscow market and are adding a powerful brand to our portfolio which we believe will enhance our business in this region.  

The integration of Mosselprom production facilities into the Group’s structure is likely to deliver additional improvements in our financial results through the achievement of revenue and cost synergies. This reflects both a significant increase in production capacities, as well as the opportunity to generate efficiency savings.  

As for our future plans, we remain very well positioned to maintain dynamic growth across all our business segments both through organic activity as well as further acquisitions such as the one we announce today».  

[1] According to RosPtitseSoiuz data