• Ingen resultater fundet

The analysed synergies can be divided into either operating or financial synergies. As is often the case in an intra-industry merger, most of the synergies come from the operations rather than financial synergies such as diversification etc. This is particular true for the proposed merger between Danish Crown and Tican, with the expected synergies coming primarily from marginal cost efficiencies.

11.2.1 Sale of plant

Tican and Danish Crown is found to have a joint market share of ~ 88% of slaughterings in Denmark in the strategic analysis. While the European Competition Authorities approved the merger, agreement could not be reached with the Danish Authorities under the suggested commitments from Danish Crown. The requirements, while not publically announced, could include the commitment to maintain a competitive price on the Danish market or ensure that the competitive environment did not change substantially. In previous large mergers such as Vestjyske Slagterier in 1998 (Christensen, 2000) or Steff Houlberg in 2001 (Kfst.dk, 2013) the merger approvals were conditioned by the Competition Authorities that Danish crown and the merging company were to sell off a functional slaughterhouse in order to obtain approval from the authorities. Given further consolidations on the market, it is likely that such require-ments are demanded during the proposed merger between Danish Crown and Tican. Further-more, the employees of Tican’s Thisted slaughterhouse have expressed concern about wheth-er or not the slaughtwheth-erhouse would remain open aftwheth-er the mwheth-ergwheth-er.

Seen in light of the requirements on recent mergers, alongside the expectations of the coop-erative members of Tican, it is believed to be very likely that the main production facility of Tican in Denmark, Thisted, will be sold as part of the merger agreement.

In addition, since the exact requirement is uncertain, the authors include scenario analysis of different aspects that could impact the business case. For now, the analysis will assume that Danish Crown is able to sell the plant of Thisted to actors not directly in competition with Danish Crown and Tican. This assumption is relaxed in upcoming scenario analysis.

The market value of the Thisted plant is not known and is thus based on the current level of property, plant and equipment in Tican. Tican has processing plants in both Poland and the UK as well as minor plants in Denmark such as the deboning in Ansager, Denmark. Thisted, however, is the main facility of slaughtering pigs in Tican. The book value of PPE in Tican 2013/14 was 768 mDKK. Since Thisted is the key primary processing plant it is assumed that 40% of the total PPE relates to Thisted at a total book value of 307 mDKK in 2013/14. How-ever, selling the plant would, although required by the Danish Competition Authorities, not

Page 80 of 131 realistically result in a price at full value. Rather, given that few or none remaining competi-tors are large enough to purchase the plant, it is assumed that 20% of the plant value, resulting in 61 mDKK, can be sold in 2015. Furthermore, it is assumed that 25% of the plants machin-ery, inventory and other production related assets totalling 77 mDKK are transferred to Dan-ish Crown’s facilities during the merger. This imposes a write-down on tangible and intangi-ble assets of 307 − 77 = 230 mDKK as the transferred assets are now decreased substantial-ly (Sørensen, 2012).

In response to the sale of Thisted plant, and given that Danish Crown pre-merger has opti-mized capacity by shutting down affiliates in the UK and one in Sæby (Danish Crown, 2014b), it is unlikely that Danish Crown can facilitate the full surge of 1.901 million pigs from Tican without the Thisted plant, without undergoing significant capacity investments on their current facilities. These investments are critical in ensuring a stable top line development and, based on historical continuous capacity investments, is expected to equal 245 mDKK, distributed with 170 mDKK the first year, 50 mDKK the second and 25 mDKK by 2016/17.

Secondly, the current machinery of Danish Crown may have to be altered to facilitate the products that Tican produced on Thisted. While the majority of the more complex and differ-entiated products are produced on other plants than Thisted, some products will still be specif-ic and adjustments in the production is thus needed – this is expected to be 15mDKK per year for the first three years.

Table 11-2: Total assets transferred during the merger, net of sale

Assets 2014 2015 2016 2017 2018 2019 2020

Book value of Thisted plant 307 -307

Transferable machinery 77

Net effect on assets -230

Capacity investments 170 50 25

Capacity improvements 15 15 15

Total effect on assets -45 65 40

11.2.2 Additional restructuring cost

The capacity expansions argued above, while having up-front effects on the NIBD, are not expected to take full effect immediately. In other words, as the Thisted plant is sold off, Dan-ish Crown is unlikely to produce all the 1.901 million pigs at their plants, however, given the Articles of Association are forced to purchase them off its cooperative members.

Given the recent sale of two affiliates, the authors assume that only 30% of the production can be facilitated directly at Danish Crown during the first year, which accounts for 570 million

Page 81 of 131 pigs or an additional 11 million pigs per week on the current facilities of Danish Crown at an increase of 3.6% compared to its current level of activity (Danish Crown, 2014b). As the ca-pacity adjustments begin to take effect during the second year, the ratio is increased to 80%

and ultimately 100% of the production of Tican by the third year. The remaining 70% of the production immediately following the merger is expected to be produced during overtime, as was the case with Steff Houlberg, or ultimately exported or frozen down till capacity con-straints were relaxed. The two scenarios are given 35% of Tican’s production each.

The 35% of Tican’s current volume associates with overtime production or night shifts, and thus impose a higher relative production cost per kg. This approach was observed during the merger between Danish Crown and Steff Houlberg (Danish Crown, 2002). Based on 665 mil-lion pigs and an overtime premium of 25% on production costs the total effect result in a neg-ative synergy of -401 mDKK in 2014/15 and -117 mDKK in 2015/16 as the overtime propor-tion is reduced to 10%.

The remaining 35% are unlikely to be produced on Danish Crown’s facilities due generally very little excess capacity available (Danish Crown, 2014a), however has to be purchased by the cooperative members due to the Articles of Associations of the cooperative (Danish Crown, 2014b). Danish Crown then faces two possibilities; they can export the animals as livestock, albeit at a lower margin than obtained through processing, or they can freeze the animals until capacity is restored however the prior method is assumed most applicable. Both methods have been used by Danish Crown in the event of overcapacity (Danish Crown, 2014a).

Pork is regarded a commodity and is traded publically at a price of 14 DKK per kg at the time of the merger (Indexmundi.com, 2016) whereas a sale of fresh meat or processed meat con-tributes to an average of 36 DKK per kg based on total revenue divided by total kg produced.

After subtracting operational costs the produced meat has an EBITDA effect of 1.3 DKK per kg, whereas the exported meat has an effect of only 0.5 DKK per kg and is thus, less profita-ble. The exact loss from exporting meat, rather than producing it, has been estimated to a 40%

reduced profit effect. On the one hand the exported meat does not result in any production costs, but on the other hand the exported pigs are subject to substantially higher distribution costs. The total reduction of Tican’s revenue streams in 2014/15 due to the export of 665 mil-lion pigs result in a loss of -729 mDKK and -213 mDKK in 2015/16 where only 10% of the pigs are assumed exported.

Finally, restructuring costs from due diligence on the merger is expected to result in costs of 90 mDKK which was the fee faced by Danish Crown during the merger with Steff Houlberg (Danish Crown, 2002). The effects from this section are summarized in the Table 11-3.

Page 82 of 131 Table 11-3: Restructuring costs from capacity constraints and due diligence

Restructuring costs PV 2015 2016 2017

% of pigs handled at DC facilities directly 30% 80% 100%

% of pigs produced at DC facilities with overtime

hours 35% 10% 0%

% of pigs exported at lower margin 35% 10% 0%

Discount during integration -873 -729 -213 0

Overtime during integration -480 -401 -117 0

Advisory fee -85 -90