X5 Retail Group NV (FIVE), the food retailer owned by Russian billionaire Mikhail Fridman, fell to the lowest in more than two weeks after Kommersant reported it may acquire Moscow-based competitor OAO Seventh Continent.
The shares retreated as much as 3.1 percent and closed 1.9 percent down at $16.40 per depositary receipt in London, the lowest since Sept. 4. Investors traded about 112 percent of the three-month daily average of securities.
Seventh Continent owner Alexander Zanadvorov is seeking at least $2.4 billion for the chain, which had sales of about $2 billion last year, Kommersant reported. X5 may acquire lease rights for 130 stores in Moscow totaling 450,000 square meters, the newspaper said, citing two people familiar with the matter. Gregory Madick, X5’s head of investor relations, declined to comment on “market rumors” as did a spokeswoman for Seventh Continent.
Buying Seventh Continent would be “negative” for X5 as the company “has been facing operating difficulties in its key formats,” analysts at VTB Capital said in a note today.
X5 lost the title of Russia’s largest retailer by revenue this year to OAO Magnit. (MGNT) While X5 has expanded mainly through acquisitions, Magnit has focused on growing without them. X5’s market value has fallen 27 percent in the past year to $4.4 billion. Magnit has added 76 percent to $29.7 billion.
X5 may agree to pay $550 per square meter a year for Seventh Continent’s premises, according to Kommersant.
The transaction would give Seventh Continent an enterprise value that’s at least 10.9 times 2012 earnings before interest, taxes, depreciation and amortization, according to analysts at Okritie Capital. X5 trades at about 7 times, the analysts said in a note.
Ilya Yakubson, chief executive officer of food retailer OAO Dixy Group, said by phone today that while his company was asked by Seventh Continent to make a bid, Dixy refrained from further talks as it deemed organic growth more cost-efficient.
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