Orkla CEO Korsvold said the combined business could better compete with international rivals

Orkla CEO Korsvold said the combined business could better compete with international rivals

Orkla CEO Åge Korsvold today (20 August) defended Rieber & Søn's recent performance as the Norwegian conglomerate announced a deal to buy the local food group, which has had a challenging 18 months.

Korsvold said Rieber & Søn had "very good, strong" positions that he hoped Orkla could exploit even after the recent mixed financial results at the business.

Rieber & Søn's profits fell in 2011 and last month it reported a further decline in half-year earnings.

Speaking to reporters after Orkla's agreement to buy the Rieber family's 90.1% stake in Rieber & Søn was announced, Korsvold was asked how Orkla could improve the company's performance.

"Things go up and down. Rieber & Søn is a strong company. Even though the figures haven't been as good as we could have wished in recent years, Rieber & Søn still has very good, strong positions. That hasn't changed," Korsvold said.

Orkla has struck a deal to pay NOK66.58 a share for the Rieber family's stake. The agreement values Rieber & Søn at NOK6.1bn on a debt-free basis. Korsvold said Orkla, which is looking to become a company focused on consumer goods had paid "a good price" for the stake. However, he insisted the deal would generate value for Orkla.

"This is a good company and you are going to pay a good price for it," Korsvold said. "This is a value-creation transaction for Orkla. It meets all our requirements for returns and is accretive."

Orkla has been looking for acquisitions since it announced last year it wanted to focus on the FMCG sector. Analysts welcomed the new strategy but it has not been plain sailing for the business. This spring, Orkla stunned the market when it announced its CEO and the head of its consumer goods business had left the company. Industry watchers speculated that Orkla's board had grown frustrated at the slow progress of implementing the company's new direction.

Korsvold became CEO and he told reporters he "took the initiative" before the summer and contacted representatives of the family investors behind Rieber & Søn to discuss a possible transaction.

The Orkla chief said the "very competitive" grocery market meant companies needed more resources to prosper. He said companies needed economies of scale and greater resources to be able to invest in innovation and compete with international manufacturers.

"We share the opinion the Rieber family arrived at that having a well-funded, good branded consumer goods company will benefit Rieber, too. This is a question of innovation, of cost: all of these different aspects of competitiveness are decisive. It's not Orkla alone that is going to create this. This is something we are going to accomplish together," Korsvold said.

Fritz Rieber, a representative of the Rieber family, told reporters the family had "mixed feelings" about announcing a deal that would see the sale of a company that it had owned for over 170 years.

However, he said the deal would create a strong business that could compete on an international stage.

"Being able to contribute to making a strong, Nordic food manufacturer that can compete with major global food players will be very positive for our customers, employees and consumers," Rieber said.

The deal needs to be approved by regulatory officials at the EU and in Russia - a market where both companies operate. It will bring together two companies operating in a number of markets around Europe. Orkla sells food in markets including the Nordic region, the Baltic states, Austria and Russia. Rieber & Søn's main markets outside the Nordic area are in central Europe, with the company marketing products in countries like Poland, the Czech Republic and Slovakia, as well as Russia.

Orkla chairman Stein Erik Hagen said there was "not very much overlap" in the two companies' product portfolios. "I don't think there should be any great problems that we should encounter there," he said.