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Metro Confirms Plan for Partial IPO of Russia Cash & Carry

A customer Enters a Metro AG Cash & Carry Store in Weiterstadt
Metro AG, Germany’s biggest retailer, said in June that it planned to invest $750 million in Russia over five years. Photographer: Hannelore Foerster/Bloomberg

Metro AG, Germany’s biggest retailer, confirmed that it plans to proceed with a partial initial public offering of its Russian Cash & Carry unit in the first half of this year to raise money for expansion.

The company will sell as much as 25 percent of the business, which analysts at Citigroup Inc. have estimated may be worth about 7 billion euros ($9.5 billion).

The listing, which is slated for London, will “enable us to expand our business in an even more dynamic way and to strengthen the balance sheet,” Chief Executive Officer Olaf Koch said today in a statement.

Metro joins a busy market for stock offerings in Russia as retailers seek cash to help fund expansion. Russia is forecast to be Europe’s biggest retail market by 2018 as chains increase their footprint across the world’s largest country, according to Euromonitor research. Detsky Mir, the nation’s largest retailer of children’s goods, and hypermarket chain Lenta Ltd. are also among Russian companies seeking listings, people familiar with their plans have said.

“There should a large demand from investors” for shares in the Metro unit, said Mikhail Burmistrov, head of St. Petersburg-based researcher INFOLine-Analitika. He estimates the business may be worth $6 billion to $6.5 billion, or 9 to 10 times the unit’s estimated earnings before interest, taxes, depreciation, and amortization for 2013.

‘Good Timing’

The IPO will give investors an opportunity to buy an emerging-markets company “with a lower developed-market risk,” Burmistrov said. “The timing is also good as Metro’s IPO should follow a share sale by Lenta, which has a similar format and is expected to get a high valuation.”

Lenta, controlled by U.S. leveraged buyout firm TPG Capital, plans to sell shares in London next month, with a possible secondary listing in Moscow, according to two people familiar with the matter. The company is seeking an equity valuation upwards of $5 billion, the people said.

Selling a minority stake will give Metro funds to step up investment in the business. The retailer said in June that it planned to invest $750 million in Russia over five years.

Metro has about 70 Cash & Carry wholesale stores in Russia, which generated sales of 4.1 billion euros in 2012, according to the company’s annual report. Group revenue in that year was 66.7 billion euros.

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