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05.10.09
X5 Retail Group has applied for regulatory approval to buy smaller rival Paterson
X5 Retail Group, Russia's largest grocer by revenue, has applied for regulatory approval to buy smaller rival Paterson, delivering on expectations of growth via acquisitions in the crisis-hit sector.
An official at the Federal Anti-monopoly Service (FAS) said on Friday X5 had asked for permission to buy into Paterson, but declined to specify what stake X5 sought to acquire.
Russian retailers are facing a difficult year as ordinary Russians' purchasing power slumped in the country's first recession in a decade, which saw the rouble devalued, unemployment spike and real wages decline.
But the economic downturn has also offered retailers opportunities to grow market share through acquisitions of weaker competitors who are facing issues with refinancing their debts.
X5 Chief Executive Officer Lev Khasis told Reuters Investment Summit last month that he expected the next 12 months to be very promising in terms of retail M&As.
X5 traded 4.72 percent down at 1255 GMT, outperforming the broader Russian shares index in London.
"X5 always looks at M&A opportunities as part of the long term consolidation of the retail sector. The company from time to time conducts preliminary discussions with many companies. Paterson is one example," Khasis said in emailed comments.
He confirmed X5 had submitted the request with the regulator, but refused to comment on what he said were "preliminary negotiations."
"Submission of an application to the anti-trust authorities is a purely technical step, required to determine whether there are any regulatory issues to proceeding with negotiations."
Alexei Mauergauz, who co-owns Paterson with his brother Konstantin, declined to comment.
Paterson, one of Moscow's oldest supermarket chains, is facing a 1.5 billion rouble ($50 million) bond payment on maturity in December, and is currently seeking to restructure it with a new bond issue of the same size.
The company operates around 80 stores and had revenues of 14 billion roubles ($465.7 million), under Russian Accounting Standards, in 2008. Its debt is estimated at 3 billion roubles.
Nikolai Gabyshev, managing director of investment company Pollyanna Capital Partners, said X5 might have to pay $300-360 million for 100 percent of Paterson, or 5 to 6 times its estimated earnings before interest, taxation, depreciation and amortisation that the company itself does not disclose. Two banking sources and a source close to Paterson said X5 has been in talks to acquire Paterson since the beginning of 2009 and is currently discussing with its owners a part-cash, part-equity deal.
One banking source said the sides had signed a memorandum of understanding, but it was too early to talk about the deal.
Reuters, 02.10.2009