On 4 April 2024, SIA “Rīgas meži” signed a contract with SIA “Stiga RM” on the sale of the “Norupe” sawmill. The sale process was carried out in line with good governance principles, in accordance with the decisions of the SIA “Rīgas meži” supervisory board, the meeting of shareholders and the municipality, and in line with the instructions of the State Audit Office and the Competition Council on preventing distortion of the market and of competition.

Under the contract concluded, the municipal company is selling the entire sawmill business as a whole, without splitting it into parts. The value of the transaction is six million euros (excluding VAT). It will be finalised at the moment the transaction is fully completed, in line with the actual situation.

As provided for in the regulatory enactments, the transaction will come into full force once, in accordance with the procedures for such transactions, the Competition Council's permission has been received to carry out the sale of the sawmill set out in this contract.

On the sale of the sawmill

The process of selling the “Norupe” sawmill began in the summer of 2022. It involved market research, identifying a bidder and preparing documentation, among other significant processes. It is important to stress that throughout the preparation and implementation of the transaction, the principles of good governance, legality, transparency and calculation-based decision-making were observed. This was ensured both by the company and its supervisory organisations and by the consultants engaged through a public procurement procedure.

The plant is being sold without guaranteed raw material supply contracts. This means that the new owner will be able to take part in the timber auctions organised by SIA “Rīgas meži” and acquire the right to purchase the roundwood it has bid for, just like any other market participant.

The second key condition set by SIA “Rīgas meži” was that the interests of the existing employees of the “Norupe” sawmill be respected both during the sale process and afterwards. As part of this transaction, the buyer of the sawmill will continue the employment relationships with all 35 sawmill employees, will take into account their length of service and accrued leave, and will observe the employer's obligations set out in the SIA “Rīgas meži” collective agreement.

“More than two years ago, when the SIA “Rīgas meži” supervisory board began its work, one of the main objectives was for the company to exit the roundwood processing business, as the supervisory institutions had indicated. Throughout this time we have closely followed and overseen how this process was organised and carried out within the company,” says Toms Auškāps, Chair of the SIA “Rīgas meži” supervisory board.

“On behalf of the supervisory board, I want to stress that this was yet another masterclass in good practice by the company! The sale of a significant part of SIA “Rīgas meži” was carried out with respect for the interests of everyone involved – employees, the company, the municipality and even the buyer. Every next step was carefully planned while the sale process was being organised. And the results followed – the most advantageous outcome has been achieved, both commercially and overall. This successful transaction will certainly increase the value of SIA “Rīgas meži” and is proof of the company's excellent governance,” T. Auškāps emphasises.

External consultants were engaged in the sale of the sawmill under the procedure laid down in the Public Procurement Law. They assessed the exit of SIA “Rīgas meži” from the roundwood processing business and identified the scenarios for carrying out this transaction that would be most advantageous for the company. The consultants concluded that if the sawmill continued to operate as part of SIA “Rīgas meži”, it would keep making losses and would reduce the value of the company's capital shares, not least because the sawmill is permitted to process only timber obtained within the territory of SIA “Rīgas meži”.

Meanwhile, having assessed the possible ways of selling the sawmill and their suitability in terms of demand from potential investors, the interests of SIA “Rīgas meži” and the regulatory framework, the consultant found that the most advantageous scenario for the company was the sale of the sawmill business (the entirety of its assets and liabilities).

On attracting an investor

The process of attracting an investor for the “Norupe” sawmill and organising its sale was handled by the external consultant “KPMG Baltics SIA”, the provider of the most economically advantageous service as determined through procurement.

The investor attraction and sale service proceeded in five stages: developing the transaction strategy, approaching potential investors, in-depth research and assessment of the potential transaction, and providing support in closing the transaction.

During the investor attraction process, 121 potential bidders were approached, of which 11 signed confidentiality agreements and five visited the “Norupe” sawmill in person.

As a result, the offer from SIA “Stiga RM” was the most economically advantageous and also the closest match to the required form, including the acquisition of the entire business and safeguarding the interests of the existing employees.

“We are pleased that, in attracting an investor for the “Norupe” sawmill and organising the sale process, we managed to draw in a considerable number of potential investors. As a result, an investor was identified who was able to offer the most economically advantageous transaction value,” emphasises Kārlis Urbāns, Director of Deal Advisory at “KPMG Baltics SIA”. “We wish the buyer continued success and growth in integrating the sawmill business into its operations. And we congratulate the seller on the opportunity to close this chapter and focus on the sustainable development of the core business of SIA “Rīgas meži”.”

Assessment by the responsible institutions

Oskars Erdmanis, member of the Council of the State Audit Office: “After every audit we issue recommendations to the audited body, and we expect their implementation within a set deadline to produce a specific result and impact. We are pleased about every recommendation that is implemented in substance – we appreciate the action taken by the City of Rīga in ending the activity of SIA “Rīgas meži” in the field of wood processing, which does not belong to a municipality. We also wish SIA “Rīgas meži” and private businesses successful cooperation in the future!”

Juris Gaiķis, Chair of the Competition Council: “Back in 2017, while supporting the audit carried out by the State Audit Office, the Competition Council concluded that, under Section 88 of the State Administration Structure Law, there were no grounds for the “Norupe” sawmill of SIA “Rīgas meži” to operate on the market. In the view of the Competition Council, state and municipal companies should not engage in commercial activity in markets where the private sector is able to provide these services efficiently and successfully. The termination of the unjustified commercial activity of SIA “Rīgas meži” in the roundwood processing business is therefore to be assessed positively, as it ensures compliance with the requirements of the State Administration Structure Law.”

The scenario for the plant's further development

“The company “Stiga RM” is expanding its operations, and in the coming years a new, modern, technologically advanced plant will be built on the site of the existing sawmill, providing well-paid jobs for the people of Ogre and the surrounding area. This will be a place where timber grown in Latvia is processed into high-value export products that we can be proud of and that will carry Latvia's name out into the world. This is an excellent opportunity to use the knowledge we have built up in manufacturing high value-added products, promoting the development of Latvia's wood processing industry, growth in export volumes and an even greater contribution to our country's economy,” emphasises Jānis Osis, Member of the Board and Development Director of SIA “Stiga RM”.

About the “Norupe” sawmill

The “Norupe” sawmill of SIA “Rīgas meži”, near Ogre, was set up 11 years ago. The sawmill, its buildings, the pellet workshop and the timber storage yard occupy just under ten hectares. The plant's equipment is in working order. However, to increase productivity, substantial investment in modernising it is needed, as well as raw materials for production.

Estimates and consultants' assessments indicate that even if SIA “Rīgas meži” were theoretically to purchase new equipment and keep the sawmill as part of the company, it would stagnate from then on, because:

- under the State Administration Structure Law, the company is permitted to process only roundwood obtained in the territories it owns or manages,

- the company's strategic objective approved by Rīga City Council in 2021 and the amendments to the “Forest Management Plan” provide for a substantial reduction in the volume of felling, with greater attention paid to the protection and development of recreational areas and biological diversity, as well as to increasing revenue from non-timber products.