5 Apr 2019 18:29

Magnit offered to buy Lenta for $1.8 bln or $3.65/share, slightly above Severgroup offer price

MOSCOW. April 5 (Interfax) - Magnit , Russia's second largest retailer, made a nonbinding offer on April 1 to buy 100% of retail chain Lenta for $1.78 billion, Lenta reported.

The price per GDR offered by Magnit, $3.65, is slightly higher than the price of $3.60 at which Alexei Mordashov's Severgroup intends to buy Lenta shares.

Magnit's offer was made after TPG and the European Bank for Reconstruction and Development agreed to sell their stakes in Lenta to Severgroup.

"On April 1, after agreements had been reached by Severgroup with each of TPG and EBRD, and shortly before the Offer Announcement was released, Lenta received an indicative, non-binding proposal from Magnit to acquire '100% of Lenta's business for an all-cash consideration corresponding to U.S. $1,779,525,836' and implying an equivalent value of $3.65 per Lenta GDR," Lenta said.

"The Lenta independent directors confirm that Magnit, a Russian retailer, approached Lenta on March 11 to explore the merits of a possible combination. High-level communications have since taken place between Magnit and the Lenta independent directors regarding a possible transaction, but Magnit has failed to provide precision around the structure, timing and deliverability of any such transaction, notwithstanding repeated requests from the Lenta independent directors to do so," it said.

Lenta's independent directors then asked Magnit to confirm whether it is prepared to make a deal, considering that Severgroup has agreed to acquire 42% of Lenta from TPG and the EBRD, and if yes then to specify the timetable and structure for the deal it proposes.

"Magnit is in fact interested in a deal. The retailer has made Lenta an offer on the acquisition of 100% of its shares," a Magnit spokesperson told Interfax on April 5.

Magnit said in a statement later on Friday that it had sent its official offer to Lenta to buy 100% of its business back on March 18 and then submitted additional information on April 1.

"Magnit confirms that it was exploring a possible acquisition of 100% of Lenta's business. However, the company was surprised that Lenta's announcement stated that Magnit failed to provide precision around the structure, timing and deliverability of such acquisition, notwithstanding repeated requests from Lenta's independent directors. In fact, Magnit contacted Lenta and showed serious interest to engage on March 11 and again on March 18 when Magnit sent a formal proposal to Lenta. Lenta replied to the proposal only on March 28 and requested further details. Magnit replied within two business days on April 1 with proposed deal structure and terms including price. Lenta did not reply to Magnit's April 1 letter. Magnit is looking forward to receiving a response from Lenta and will then consider how it intends to proceed," Magnit said.

"No assurances can be given that any transaction will be progressed or as to the terms on which it may be made. A further announcement will be made if and when appropriate," it said.

It emerged on March 27 - initially in press reports quoting sources, which Lenta confirmed almost immediately - that Severgroup was in talks with TPG and the European Bank for Reconstruction and Development (EBRD). In the early hours of April 2, Severgroup said it had signed binding agreements with TPG and the EBRD, and the following day the EBRD officially confirmed this.

Severgroup said it is acquiring 41.9% of Lenta's share capital, excluding treasury shares, at $3.60 per GDR ($18 per share) for a total cash consideration of approximately $729 million. Upon completion of the purchase, and as required by the articles of association of Lenta, Severgroup will make an offer to all the retailer's shareholders/GDR-holders to acquire their Lenta shares/GDRs at a price of $3.60 per GDR/$18 per share. The offer price values Lenta at $1.75 billion.

Lenta's independent directors are not giving and do not plan to give recommendations regarding the Severgroup offer to the holders of Lenta securities.

Some of Lenta's minority shareholders, notably Prosperity, are skeptical about the terms of Severgroup's offer. Questions were asked at a conference call with Lenta's management this week as to how beneficial and fair the price offered by Mordashov was and was there not a more attractive alternative. One investors asked whether Lenta has received an offer from Magnit or X5 Retail Group, but Lenta's management declined to answer.

Lenta is Russia's third biggest retailer and the leader of its hypermarket segment. The company has not given investors much to cheer about lately, though: revenue growth has been slowing since Q3, it has given modest growth forecasts for 2019 and the company has abandoned its long-term strategic goal to triple its retail area in 2017-2020.

Revenue growth slowed to 13.2% in 2018 from 19.2% in 2017. The EBITDA margin fell to 8.8% from 9.7% and net profit was down 11.1% to 11.79 billion rubles.

Lenta replaced CEO Jan Dunning, who had led the company for almost a decade, with CCO Herman Tinga in December. Dunning left the company for Magnit in January, occupying the post of company president, created especially for him, leading to speculation the companies might merge

No discussions on a possible merger of retailers Magnit and Lenta have been held thus far, VTB First Deputy CEO Yury Solovyev told Interfax at the end of January, VTB is the biggest Magnit shareholder.