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How to make a 'global top player' in farming, the Alpcot way

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Alpcot Agro, the Black Sea farm operator buying Landkom International to form a "global top player", got a taste for what is in for last year.

In July 2010, its Ukrainian operations negotiated the $3m purchase of "distressed assets" of Polski Koncern Mięsny Duda (PKM), including a partially-built grain silo, in what it at the time called a "transformational step".

And that was for a 7,500-hectare business.

Landkom has more than 10 times as much land under control.

"But we like to think of the PKM deal as a bit of a dress rehearsal," Katre Saard, one of Alpcot Agro's three founders, responsible for setting up the Ukraine operations, said.

Strong yields

If so, Landkom could be in for a bit of a - positive - yield shock.

Alpcot Agro overview


landbank: 181,400 hectares

Planted land 2011: 78,600 hectares

Employees: 1,300


landbank: 18,800 hectares

Planted land 2011: 13,700 hectares

Employees: 100

(Landkom talked of yields of a similar order" to the 7-tonnes-per hectare" achieved in Poland when it listed four years ago.)

In corn, PKM achieved a yield of 10 tonnes per hectare, compared with a Ukraine average, and Landkom result, of about 6 tonnes per hectare.

Indeed, it would match the result from MHP, the farming and poultry giant which set a European record for corn yield this year, of 19 tonnes per hectare at one farm.

'Lean corporate structure'

And this might even be achieved with less personnel.

Alpcot, which touts the input from US agronomists "used to working 24 hours a day" and from its cadre of "high quality managers", operates in Ukraine with one employee per 137 hectares, compared with 53 for Landkom.

"We have a lean corporate structure," Ms Saard said.

"At Landkom, there are a lot of efficiency savings that could be made. They are not as efficient as us."

One improvement will be in the revamp of the Landkom tractor fleet, which it emerged on Tuesday included only one machine less than three years old, and with many smaller than ideal for Ukraine's huge fields too.

The size of the machines, rather than age, was more of an issue, with Ms Saard saying Landkom's machinery had been "well maintained".

Land sales ahead?

Nor are operational improvements the only upside on offer, with the merger of the groups too to create a consolidated landbank of some 70,000 hectares in western Ukraine – a bonus in terms of the value of the portfolio besides presenting savings through cutting out duplicated costs.

Comparison of Alpcot Agro Ukraine and (Landkom) performance, 2011

Winter wheat yield: 4.3 tonnes per hectare, (3.5 tonnes per hectare)

Corn yield: 8.3 tonnes per hectare, (6.3 tonnes per hectare)

Gross profit, winter wheat: $167 per hectare, ($102 per hectare)

Gross profit, corn: $871 per hectare, ($452 per hectare)

Harvested hectares per employee: 137, (53)

Indeed, Alpcot may sell some Landkom land in other, "less productive" parts of Ukraine.

"Western Ukraine is a great region to farm. It has stable precipitation because of the Carpathian Mountains," a big bonus in a country whose harvest last year was curbed by a dearth of rain, which has returned to impair autumn-sown grains this year.

The discount

Not that Landkom shareholders are not being asked to pay for this, in terms of accepting a discount for their shares.

The all-share deal, as of share prices last night, before it was announced, valued Landkom stock at 2.69p - a 14% discount to the market value.

That's unusual. Typically buyers pay a bid premium.

And ideas that Alpcot is getting all the value of the deal appeared to be only enhanced by a jump in its share price on Wednesday of 19.5% at one point. Landkom shares fell 20% to 2.5p.

'Shareholder support'

Investors should refrain from reading too much into this dynamic, Hannes Sjobladt, the Alpcot deputy managing director said, noting that shares in both companies were relatively illiquid, meaning "small orders can move the market significantly".

Furthermore, Alpcot shareholders, consulted about the deal more than two weeks ago, have been barred since by insider trading laws from dealing, and taking advantage of a stock price which had dropped 15% in December, ahead of the deal.

A high Alpcot share price was also beneficial for both sets of shareholders, given that Landkom investors will end up with Alpcot's Stockholm-listed stock.

Indeed, talks with Landkom's biggest investors revealed that they "all support the transaction", Mr Sjobladt said.

"The combined group will be much stronger."


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