Lankem Ceylon PLC (LCP), a major Colombo conglomerate involved in agriculture-related and paints businesses, said this week that its acquisition of C.W. Mackie (CWM), a food distribution and trading firm, is aimed at moving into the food production and manufacturing sectors in a big way by using its extensive links with farmers.
Anushman Rajaratnam, Managing Director LCP told the Business Times in an interview that the group is also open to other acquisitions. “We’re open to other such takeovers. The economic optimism is quite high at present and if there is something which adds value to the group we will certainly look at it,” he added.
Group subsidiary, Lankem Ceylon Ltd, which has extensive linkages to the farmer community, will get into the food industry through CWM’s distribution arm. “We own 50% of the market share in the agro chemicals industry in the country and we hope to buy the outgrower produce (by working the farmer community linkages), process the food and distribute them through CWM’s distribution channels,” Mr Rajaratnam added.
Last month, Aarhus United A/S, a Danish firm which held a 30.09% stake in CWM and Ceylon Trading Company, a locally incorporated firm which held further 26.47% stake through 9.56 million shares, sold out to LCP in a Rs 712 million-worth deal.
“This acquisition is quite a good fit because CWM has essentially three different business lines - distribution, rubber manufacturing and trading and sugar imports. We will be exploring these areas and synergise them with our existing core areas,” said Mr Rajaratnam. He said that LCP subsidiary, Kotagala Plantations is a large rubber grower while CWM is a big rubber manufacturer. “LCP gets many queries from clients for Technically Specified Rubber (TSR) for an example, but we don’t have the required grades to manufacture this type of rubber, while CWM does. CWM may be the only firm owning a TSR manufacturing factory in the country. So we are moving upstream in terms of value addition and banking on CWM’s in-house technology,” he explained.
He said the main strategy behind the takeover was also that LCP wanted to become a company which manufactured rubber-based products. “By acquiring CWM, we acquired the expertise to be a group which manufacture rubber based products,” he added.
He also noted that nearly a half of CWM’s Rs. 5 billion annual turnover is export related.
He said it is also outside LCP’s local market and it was quite a good fit as LCP is a 90% net importer. “So by taking on a net exporter into the fold, we can match LCP’s currency flows,” he added.
Mr. Rajaratnam said that in general the markets have grown since the dawn of peace. “In the North and the East we have got now enough and easy access which we didn’t have. The clearing up of these areas has seen new farmers such as in Mannar,” he said.
He said this acquisition will increase LCP’s annual turnover (presently at about Rs. 10 billion) by 50%. Lankem is involved in agro chemicals, paints, plantations and paints with several subsidiaries. Other big firms involved in agriculture and outgrowers include Cargills and CIC.