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16 I Companies & Markets bne March 2018
The founder of Russian supermarket giant Magnit’s calls it a day
Ben Aris in Berlin
Sergei Galitsky, founder of Russia’s regional supermarket chain Magnit, has called it a day and sold most of his shares to state-owned banking powerhouse VTB for RUB138bn ($2.4bn).
Long an investor’s darling, Magnit has lost its mojo in the last two years and has been overtaken in revenue and market capitalisation by its close rival, the X5 Retail Group, which is part of Mikhail Fridman’s Alfa Group.
Galitsky will remain a minority shareholder with 3% in an investment deal signed on the sidelines of the Sochi Invest- ment forum this week, Vedomosti reported on February 16.
Galitsky has become something of an investment icon in Russia. Over the last 25 years he has built the company up into a $10bn business by defying convention and eschewing Moscow to focus his retail chain on the small cities and towns in the regions. Personally he also eschewed the oligarch high life of designer yachts, former model wives and London town houses; despite being worth several billion dollars Galitsky has continued to live modestly in his native regional city of Krasnodar where the company is also headquartered.
“I have run the company for 25 years but it is time for something to change in my life,” Galtisky said, cited
by Vedomosti. It seems that he has become tired of work and the management has been riven recently by internal conflicts over its direction. Galitsky called the decision to sell a stake in Magnit a difficult one and admitted he and other shareholders have different views on the development of the company. “The sale of VTB shares is the best solution, as the bank has great ambitions,” Galitsky said.
There is no buy-back option in the deal, said Galitsky who added that even if one were offered he wouldn't want it.
“If you are going to leave, then leave. Magnit will go on without me.” The sale has not come entirely out of the blue. In early 2016 Galitsky warned investors that he planed to sell about 1-1.5% of the company a year in the coming years to finance personal projects. He sold $700mn worth of shares in
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November as part of this programme following on from the sale of 1% worth $143mn in February 2015.
Off the boil
Part of Galitsky’s decision to throw in the towel must be con- nected to the problems the company has faced in the last two years. While for most of the last two decades the company has grown fast, and on top of that been one of the most profitable in the sector, thanks to the lack of competition in Russia’s vast hinterland, in the last two years sales growth has slowed.
The company’s focus on the regions has become a weakness during the economic slowdown that followed the global financial crisis in 2008. Russian incomes have halved since then but the fall disproportionately hit the regions. Russians have responded by trading down to cheaper made-in-Russia
“I left because I don't see a future in the company”
products, while the share of food in the average shopping basket has risen from a low of 35% in the boom years to more than 50% now.
That has hurt Magnit, which reported disappointing 2017 financial results and cancelled plans to pay dividends. Magnit missed its revenue growth forecasts for 2017. Sales rose by only 6.4% to RUB1.14 trillion against the expected 8-10%, while the revenue of X5 was up 25.5% y/y.
Despite recent indicators that Russians are going back to the shops and spending more, the recovery is starting in the big cities and so favours Magnit’s rivals.
Magnit’s main competitor X5 overtook Magnit at the end of last year to become the biggest retailer by revenue in Russia. This week X5 overtook Magnit as the biggest retail by market capitalisation, topping $10.05bn to Magnit’s $9.9bn.