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Tönnies sells Russian pig business to CP Foods

Charoen Pokphand Foods aims to purchase APK Don, the Russian subsidiary of German meat producer Tönnies for 22 billion roubles (US$ 290 million), the company said in a statement on the Thailand stock exchange late August.

The take-over is expected to be closed in January of 2022. CP Foods currently is Russia’s 9th largest pig producer, with a 2.6% share of the Russian pork production or 129,200 tonnes. APK Don is 11th with 2.3% or 112,700 tonnes.

In 2020, APK Don generated 10.4 billion roubles (US$ 145 million) of net revenue, 10% up compared to the previous year.

The headquarters of Tönnies in Rheda-Wiedenbrück, Germany. - Photo: Hans Prinsen
The headquarters of Tönnies in Rheda-Wiedenbrück, Germany. - Photo: Hans Prinsen

Building a vertically integrated pork production

Tönnies has long been planning to build a vertically integrated pork production holding in Russia. Recently the company changed its strategy and has decided to leave Russia, said Sergey Kovalev, director of the Russian Union of Pork Producers (RUPP). CP Foods, however, is expanding its presence in the Russian market, and as soon as the takeover deal is completed, it would be competing for top-5 positions in Russia, Kovalev said.

Artem Motorny, managing partner of the Russian financial firm Walnut Capital, said to the Russian newspaper Vedomosti that CP Foods is willing to pay a good price for APK Don’s business. Taking into account the debt, the announced price equals to is almost 2 annual earnings.

“Only a limited number of Russian investors are willing to pay 1.2-1.4 times annual earnings, and only in exceptional cases, since the profitability of agricultural companies in Russia is volatile,” he said, adding that excluding the debt, the value of APK Don is estimated to be at 8.6 billion roubles (US$ 115 million).

Pork exports can secure further growth

Motorny added, “APK Don is a high-quality asset that includes modern pig farms. There are no similar offers on the market at the moment, which is probably why investors were ready to overpay. The Russian pork market is already saturated, but export deliveries could secure further growth in pork production [in the country],” he added.