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bne Invest
April 5, 2019 www.intellinews.com I Page 10
Russian steel tycoon Mordashev buys into Lenta retail chain for $700mn
Severgroup of Russian steel tycoon Alexei Mor- dashov has acquired a 41.53% stake in Russia’s second tier retailer, hypermarket chain Lenta to enter the retail business.
Mordashov bought the shares from Lenta's larg- est shareholder TPG Group, which sold its 34.13% stake, and the European Bank for Reconstruction and Development, which sold its 7.4% stake, the company announced on London Stock Exchange, confirming previous reports.
Lenta operates 244 hypermarkets and 135 super- markets with a total area of 1.5mn square meters. In 2018 the revenues of the company were up by 13.2% to RUB414mn, but net profit declined by 11% to RUB11.8bn. The chain is the third largest in Russia in terms of food sales after X5 Retail Group and Magnit.
Mordashev paid $3.6 per one GDR of Lenta, or $728.9mn for the whole stake or $1.75bn, which makes about 8% premium to the market.
The explosive growth of Russia’s supermarket chains has come to an end as organised retail starts to run up against structural constraints. The leading chains have switched from expansion to grab more market share to improving profitability and have even begun to close some of their more unprofitable stores. Lenta has been struggling to find a strategy to more effectively compete with the two market leaders Magnit and X5 Retail Group.
Lenta's acquisition is conditioned by a mandatory buyout offer to all shareholders of the retailer's GDRs and shares, which will be held at $3.6
per GDR or $18 per share. After an IPO in 2014 Lenta has a freefloat of 57.22% on London Stock Exchange.
At the time of the IPO, just before the sanction crisis broke out between Russia and the West, the GDRs were placed at $10 making a market capi- talisation of $4.3bn. Prior to the Mordashev acqui- sition the price was about $3.3.
Mordashov does not have large retail assets in his portfolio, although he is co-owner of the Russian operations of the TUI tourists company. Previously it was reported that Severgroup was looking to buy into Russia's second-largest retailer Magnit.
"We see enormous potential in the business that improves the quality of people's life," Mordashov commented, noting in the press-release that Lenta could strengthen its position in the segment thanks to Severgroup's know-how in the digital and IT sectors.
"Lenta may add synergy to online food delivery service Utkonos, as one of the top Russian retail chains," BCS Global Markets suggested on March 27, noting Severgroup's asset. "Potential acquisi- tion explains the recent 20+% stock rally in the first half of March."