Partner & Managing Director, London
"By implementing the settlement deal with creditors we are wrapping up a demanding process of saving the company which only two years ago was at the brink of bankruptcy.”
—Fabris Peruško, Agrokor’s state-appointed crisis manager told Reuters in 2019
THE SITUATION: Agrokor collapse could mean disaster
In 2017, food and retail conglomerate Agrokor, Croatia’s largest business group, was nearing collapse. Besieged by new, low-cost competitors, burdened with more than €6 billion in debt, and with its bank accounts frozen, Agrokor was unable to meet its obligations to suppliers and creditors.
The potential consequences were catastrophic, because Agrokor—one of the largest employers in the Balkans—was so enmeshed in Croatia’s economy that its demise would have impacted virtually every citizen and business in the country.
THE APPROACH: Agrokor is too big to fail, too complex to fix
Agrokor emerged during the 1990s as a vertically integrated enterprise involved in every phase of food manufacturing and distribution, retailing and wholesaling.
But in 2017, Agrokor struggled to maintain a healthy financial position. Synergies from its many acquisitions were not captured, financing methods were unwieldy, and large investments in production facilities couldn’t generate acceptable returns in a reasonable timeframe. Because of the integrated nature of the group and the high volume of complex intra-group company trading, cash shortages in one operating unit quickly impacted the entire corporate structure.
The Croatian government was unwilling to bailout the company as it was a private corporate matter. However, in anticipation of a potential failure of the group, which at that time accounted for nearly 15% of Croatia’s GDP, the government undertook a review of its current bankruptcy laws, identifying that they were inadequate to provide the legal framework for a turnaround of a business as complex and systemically important as Agrokor.
To address these deficiencies, it developed a new law—dubbed "Lex Agrokor" by the local business press—to enable the restructuring of systemically important businesses.
With all alternative options unsuccessfully explored, at the start of April, Agrokor filed for extraordinary administration under the provisions of the new law.
THE OUTCOME: Agrokor needs an extraordinary solution
At this point, AlixPartners was brought in as Agrokor’s restructuring advisor. Our multidisciplinary team assessed the viability of the company’s many operating units, tackled cashflow, and developed a long-term plan to sustain the company and equitably settle claims.
It was a huge undertaking, with stringent time constraints, and required AlixPartners to work across several fronts to deal with management, creditors, government officials and press, while at the same time raising a €1.06 billion super senior debt facility; all done without drawing on public funds.
The restructuring team stabilized the business, implementing best practice cash management processes and working with each operating unit to develop business plans and improve EBITDA. At the same time, AlixPartners developed a plan to restructure the company’s finances through a debt-for-equity swap.
Crucial to this plan was the consolidation of all Croatian claims under a global restructuring agreement, and full repayment of Agrokor’s “micro-suppliers,” small family farms and businesses that relied on the company for their entire income. By keeping the micro-suppliers afloat, the ongoing enterprise could generate additional value for creditors, who were asked to swap their claims for equity in the surviving business units.
After complex and sometimes heated negotiations, a restructuring plan was presented for stakeholder approval at a court hearing in July 2018. The hearing ended with 80.2% of creditors approving the agreement, enabling implementation.
All parts of Agrokor now operate under Fortenova Group. New owner-managers are in charge, with new governance structures in place. Revenues are down about 4% from 2016, while EBITDA which is projected to more than double by 2021, was on target by the end of 2018.
Liquidation and break-up aren't the only recourse when a company is in distress. A swift, efficient, and equitable restructuring procedure averted disaster at Agrokor, and generated far more value for creditors. In fact, the "Lex Agrokor" legislation set a global precedent for statutes on restructuring systemically important companies.
AlixPartners’ multidisciplinary approach, our deep understanding of Agrokor’s component businesses, close collaboration with management, and focus on cash─all while working under tight time constraints and in the face of sometimes heated opposition─helped avert a national crisis.
It has also assured the survival of hundreds of small businesses, preservation of over 50,000 jobs, and set Agrokor firmly on a path to a sustainable future.
The Turnaround Management Association recognized Managing Director Alastair Beveridge for his transformational work with Agrokor, earning him the International Company Transaction of the Year award.
This prestigious recognition acknowledges the ingenuity and persistence of the entire AlixPartners team to invent and successfully manage this extraordinary turnaround solution.