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Inside Out: Lactalis’ Acquisition of Covalact Dairy Producer from SigmaBleyzer

Inside Out: Lactalis’ Acquisition of Covalact Dairy Producer from SigmaBleyzer


The Deal:  In July 2017, CEE Legal Matters reported that Romania’s Leroy si Asociatii law firm had advised France’s Lactalis group on its acquisition of Romania’s Covalact S.A. dairy producer from the SigmaBleyzer private equity firm, with Schoenherr advising SigmaBleyzer on the deal.

The Players:

•  For Lactalis: Bruno Leroy, Partner, Leroy si Asociatii

•  For SigmaBleyzer: Madalina Neagu, Partner, Schoenherr Bucharest

CEELM: How did you and your firms become involved with Lactalis in this matter, Bruno? Why and when were you selected as external counsel initially?

LsA: Lactalis has been our client for over ten years – a period throughout which we have assisted them on their largest transactions on the Romanian market. 

I believe that one of the main reasons we were selected is our understanding and knowledge of the Romanian market. In addition, we are dedicated to delivering the best legal advice, and we are very attentive to details and are proactive and innovative thinkers, priding ourselves on our abilities to assist our clients in successful transactions.

Our first contact with Lactalis was over ten years ago, when they started looking to expand their business in Romania. 

We initially assisted the French Group on their first acquisition on the Romanian market: the acquisition of the dairy division of LaDorna Group, a prominent brand in the dairy market in Romania. This was back in 2007.

Their next move took place in 2016 and involved the acquisition of Albalact – the largest Romanian dairy producer. We advised Lactalis on all transactional, regulatory, and antitrust aspects of this deal. This transaction was the first significant voluntary takeover bid carried out on the Bucharest Stock Exchange followed by the squeeze-out of the minority shareholders.

And last but not least, in July 2017, we advised the French group on the acquisition of Covalact – a deal which confirmed Lactalis’ commitment to make Romania the hub of their regional development. We assisted them in all transactional and regulatory aspects of the deal. This involved drafting and negotiating the transaction documents, notifying the transaction and submitting commitments to the Romanian Competition Council in order to obtain antitrust clearance.

CEELM: What about you, Madalina? Did your participation in Lactalis’s 2016 acquisition of Albalact play a role?

Schoenherr: SigmaBleyzer is a long-time client of Schoenherr, so we knew them and had worked for them on other projects before. It was in the very early stages of their intention to sell that they instructed us to assist on their exit from Covalact. Our previous experience in the Albalact deal might have played a role in the client’s eyes in the sense that it showed we were already familiar with the Romanian dairy market. But when SigmaBleyzer first instructed us on the Covalact deal, the project was in such an incipient phase that no one could predict Lactalis would be the buyer. So if the fact that we had already met the buyer in a previous similar transaction was a plus, this came in handy only at a later phase of the project, and not when the client instructed us.

CEELM: Were the two deals – Lactalis’s acquisition first of Albalact and then of Covalect – related in any way?

LsA: Unfortunately, we do not have details regarding Lactalis’s strategy at a CEE level.

Schoenherr: For the buyer I assume the two deals are part of a plan to consolidate their position on the Romanian market. But for our clients and our firm, there is no connection between the two projects. We assisted two different clients in two distinct transactions: in the Albalact deal, we assisted Reconstruction Capital II and Raul Ciurtin, and in the Covalact deal, we assisted SigmaBleyzer.

CEELM: What, exactly, was the initial mandate when you were both retained for this particular matter? 

LsA: The initial mandate when we were retained for this project was the acquisition of 100% of the shares issued by Covalact, consequently this was the deal structure that was consistently followed by Lactalis.

This project started in the third quarter of 2016 when we were given access to the virtual data room organized by the seller for performing a due diligence project with respect to the target companies, covering the most important legal areas.

Schoenherr: As mentioned above, we were contracted by SigmaBleyzer at an early stage of its intent to sell. We were retained to deliver a vendor due diligence and to assist in all phases of the deal (i.e., structuring, documentation, negotiations, post-signing assistance, and closing). Covalact was an appealing target for dairy market players, and in the competitive process that was the first phase of this project Lactalis was one of a series of prospective buyers.

CEELM: Were you involved in the selection of Lactalis as the eventual buyer?

Schoenherr: We were already involved in the project when Lactalis submitted their offer to the seller.

CEELM: Who were the members of your team, Bruno, and what were their individual responsibilities?

LsA: Our team consisted of three of the four Leroy si Asociatii partners: myself, Andreea Toma, and Eleonora Udroiu.

When discussing responsibilities, the negotiations and the Share Purchase Agreement were handled by myself and Andreea Toma, while the proceedings related to the notification of the transaction to the Competition Council were handled by Eleonora Udroiu and myself.  

CEELM: What about your team, Madalina?

Schoenherr: For our part, the project was coordinated by Markus Piuk, a partner in Schoenherr’s Corporate/M&A practice, and myself. The core team also included Alexandra Munteanu, a senior attorney at law in Schoenherr Bucharest’s Corporate/M&A practice group. On the aspects related to other practice areas, our Bucharest colleagues Georgiana Badescu (a partner in the EU & Competition practice), Silvia Opris (a partner in the Real Estate practice) and Adriana Radu (a partner in the Labor & Employment practice) were also involved.

CEELM: Please describe the final agreement in as much detail as possible: how was it structured, why was it structured that way, and what was your role in helping it get there?

LsA: B.S.A. International purchased the stake held by SE Dairy B.V. in the share capital of Covalact. Through this acquisition B.S.A. International gained direct control over Covalact and indirectly over its subsidiaries Lactate Harghita S.A. and Covalact-Prodserv S.R.L.

The share purchase agreement included the terms and conditions usually used for this type of transaction. It was signed on December 16, 2016, and the closing took place on June 30, 2017.

Schoenherr: The transaction was structured as a share deal, which is actually the most common deal structure. It is preferred by investors as it is easier to implement than asset deals and ensures that the business post-transaction is operational from Day 1. I would not want to minimize our role in the transaction, but it’s only fair to say that our participation was standard M&A lawyer work and the process did not face any unsurmountable bumps along the way.

CEELM: What was the most challenging or frustrating part of the process? 

LsA: The most challenging part of this process was the duration of the proceedings for obtaining clearance from the Competition Council. This was a quite long and complex process, from preparing the notification of the economic concentration operation to the submission of commitments to the Romanian Competition Council. 

The Romanian Competition Council cleared the economic concentration by accepting the commitment of our client to grant a time-limited license for one of its brands for butter to an independent third party, with the purpose of allowing the licensee to carry out a re-branding process within a certain period of time.

Schoenherr: The only challenge was timing, as the entire deal was signed within a matter of months. There was some time pressure and the deadlines in each phase were quite tight, but what helped a lot was the fact that both parties shared a common goal of getting the deal done in a swift manner.

CEELM: Was there any part of the process that was unusually or unexpectedly smooth/easy?

LsA: Of course as with any major transactions there were good and difficult parts. As regards the Lactalis-Covalact transaction, the finalization of the closing documents and the implementation of the post-closing actions were the parts of this process that went on very smoothly.

Schoenherr: The process did go smoothly, but I would not say this was unexpected, as both parties had prior transactional experience on the Romanian market and a clear picture of their objectives. As a result, the negotiations were professional and business-oriented.

CEELM: Did the final result match your initial mandate, or did it change/transform somehow from what was initially anticipated?

LsA:  The final result was in line with the initial mandate as from the beginning the goal was the acquisition of 100% of shares issued by Covalact and of course the authorization from the Competition Council.

Schoenherr: Our initial mandate remained unaltered throughout the project. We defined our scope of work in the beginning together with the client and there was no need to change it, as there were no unforeseen events to change the course of the transaction.

CEELM: What individuals at Lactalis did you work with, Bruno and how did you interact with them?  

LsA: As I was mentioning earlier we have a very good relationship with Lactalis, having them as a client for over ten years. On the Albalact and Covalact transactions, we worked with Mr. Erick Boutry, Head of the Mergers and Acquisition Department of Lactalis Group and with Gaelle Breton, Legal Counsel at Lactalis Group. It is honestly very easy working with them, and the interactions between our teams were very smooth.

CEELM: What about your contacts at SigmaBleyzer, Madalina?

Schoenherr: We worked closely with Mr. Lev Bleyzer, who is a Founding Partner and the Chief Operating Officer of the company, and with Mr. Radu Bugica, the company’s Country Manager in Romania, who played a key role in Covalact’s management as representative of SigmaBleyzer in the company’s Board of Administration.

CEELM: How would you describe the working relationship with Schoenherr on the deal, Bruno? 

LsA: We have sat across the table from Schoenherr many times in the recent period, thus I can say that our interaction with them is a good one.

Our teams worked closely on various occasions, either through personal meetings, emails or phone calls. 

Our working relationship with Schoenherr is a smooth one, we know each other well, as they were the firm advising on the seller side for the Albalact deal as well.  

CEELM: And how would you describe the relationship, Madalina?

Schoenherr: I believe the fact that we had met before in the Albalact deal, with Leroy si Asociatii representing Lactalis, did play a role in how the Covalact deal was handled from a legal perspective. This allowed for a positive level of predictability in approaching the juridical aspects, which in the end helped in meeting the tight deadlines. The team at Leroy si Asociatii involved in these two deals shows a good understanding of their client’s commercial objectives and this helps them approach the legal aspects in a pragmatic manner.

CEELM: Finally, how would you each describe the significance of the deal to Romania?

LsA: This deal is quite significant to Romania as the presence of the French group – the worldwide leader in dairy products – is of great importance to the local market. Furthermore, this proves the commitment and trust shown by Lactalis to the country and to its future development.

Schoenherr: The two deals – Albalact and Covalact – have recently won us an award from a leading Romanian business journal for advising on the largest transaction of 2016 in the FMCG sector in Romania. Also, the fact that the two deals involved the two largest Romanian dairy producers is an indication of their importance in the local dairy industry, as they generated the current dairy market leader. Furthermore, the fact that SigmaBleyzer obtained a good return on their investment and, through proper management, turned Covalact into an appealing target for investors gives a positive signal for private equity funds interested in investing in and managing local entities.

This Article was originally published in Issue 4.11 of the CEE Legal Matters Magazine. If you would like to receive a hard copy of the magazine, you can subscribe here.

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