X5 Retail Regulatory News (FIVE)

11 Apr 2008 08:09

X5 Retail Group N.V.11 April 2008 SUPERVISORY BOARD OF X5 RETAIL GROUP N.V. APPROVES ACQUISITION OF KARUSEL HYPERMARKET CHAIN* Amsterdam, 11 April 2008 - X5 Retail Group N.V. (the "Company"), Russia'slargest food retailer in terms of sales (LSE ticker: "FIVE"), today announcesthat its Supervisory Board has approved the acquisition of 100% of the shares inFormata Holding B.V ("Formata")**, owner of the Karusel hypermarket chain,subject to satisfactory due diligence on Karusel and receipt of the FederalAntimonopoly Service approval. Unless the context otherwise requires,references to Karusel in this press release are to Formata and its subsidiaries. Strategic Rationale The acquisition of the Karusel hypermarket chain will represent a significantmilestone in the development of X5's business and will enable the Company to: • reinforce its position as Russia's largest food retail operator in terms of revenue and significantly increase X5's lead ahead of its closest competitors; • immediately establish a leading position in the hypermarket format, the fastest growing food retail format in Russia; • enhance the Company's scale and efficiencies in the regions of its operations as Karusel's stores are complementary to existing regional presence of X5; • enhance X5's asset base with high quality locations and real estate ownership; and • extract significant synergies from the combination of the two businesses. Commenting on today's announcement, Herve Defforey, the Chairman of theSupervisory Board of X5 Retail Group said: "The food retail sector in Russia continues its rapid growth, supported bystrong macroeconomic fundamentals and booming consumer spending in Russia. X5'sbusiness strategy is designed to capture this growth ahead of competition, andthe acquisition of Karusel hypermarkets fits well into our strategy. Thistransaction will become a landmark deal in the sector, providing X5 withimmediate scale and size in hypermarkets, the fastest growing segment of themarket, and substantially widening the gap between the Company and itscompetitors, changing the landscape of the Russian food retail sector". Andrei Rogachev, the founder of Karusel, Member of the Supervisory Board of X5Retail Group and one of its largest shareholders added: "I consider the acquisition of Karusel to be extremely beneficial for X5 andvalue-creative for its shareholders." At 31 December 2007 X5 and Karusel had 37***operational hypermarkets. In termsof 2007 sales, the combined entity would rank as the number four hypermarketoperator in Russia, with a 23.8% share in the top 10 food retailers plus Karuseland a 3.2% share in the total Russian food retail market****. Transaction Highlights The Group is expected to acquire 100% of the shares in Formata Holding B.V,owner of the Karusel hypermarket chain, for an estimated equity value in therange of USD 920 - USD 970 million depending on the valuation of Karusel landand real estate under construction. The Company intends to settle up to 25% of the consideration for Karusel withnewly issued Company shares, as allowed under the Call Option Agreement. Themethod of financing the remaining cash payment is being determined, withdifferent forms of equity financing currently under consideration, including thepossibility of granting existing GDR holders rights to subscribe for additionalGDRs on a pro rata pre-emptive basis (subject to applicable legal requirements). Transaction Milestones X5's Supervisory Board approved the transaction on the 10 April 2008, subject tosatisfactory financial, legal and tax, and business due diligence, which iscurrently being conducted by X5. X5 expects FAS antimonopoly approval in April 2008. The final equity value is expected to be determined at the end of April - earlyMay following receipt of the real estate valuation report and determination ofSales and EBITDA figures in accordance with the Call Option Agreement. The closing of the transaction is expected to take place on 1 July 2008. Upon completion of the acquisition, X5 intends to integrate the existing Karuselstores into X5's network and relaunch them under the Mercado Supercenter brand.We expect full support from the sellers, but in case of lack of cooperation ontheir side it may result in delays in the integration of the business and theincurrence of additional costs. Karusel Overview At the end of 2007, Karusel was the fourth largest hypermarket operator inRussia both by revenue and by selling area. According to publicly availabledata, its selling area stood at c.115 thousand square meters at 31 December2007. For the full year 2007, Karusel reported net sales of USD 831.1 million. ItsEBITDA for the full year 2007 was USD 70.2 million and its net profit was USD19.9 million. Karusel owns and operates hypermarkets located in St. Petersburg and the NorthWest of Russia, the Moscow region, Nizhny Novgorod, Dzerzhinsk, Volgograd andIzhevsk. There are currently 23 hypermarkets operating under the Karusel brand. Three more hypermarkets are under construction. Synergy Benefits The acquisition of Karusel is likely to provide the combined Group withsignificant synergy benefits from enhanced scale and operational integration. Revenue synergies are likely to be generated through an improvement in the salesdensity of the existing Karusel stores. This is likely to be achieved as aresult of several initiatives including rebranding of acquired stores, changingthe merchandise assortment and improving the stores' value proposition. Gross profit is expected to benefit as a result of improved purchasing power,especially in the non-food category, as well as reduced logistic costs. Cost synergies are likely to be achieved through a decrease in overheads andeconomies of scale. It is expected that the rebranded and integrated hypermarkets' normalizedperformance will achieve sales densities and margins above Karusel's historicallevels in 2009. ___________________________________________________________ * Subject to satisfactory financial, legal & tax, and business due diligence and also to the Federal Antimonopoly Service (FAS) approval ** Pursuant to a Call Option Agreement relating to the entire issued capital of Formata between the Company, Puritani Corporation N.V. and Overture Corporation N.V. dated 11 April 2006 (the "Call Option Agreement"). *** 15 compact and one full size hypermarket under Perekrestok brand and 23 Karusel stores **** In accordance with Business Analytica, in 2007 the size of the total Russian food retail market was USD 190 bln NOTE TO EDITORS: X5 Retail Group N.V. is Russia's largest food retailer in terms of sales. TheCompany was created as a result of a merger between Pyaterochka (soft discounterchain) and Perekrestok (supermarket chain) on 18 May 2006. As of 31 March 2008, the Group had 731 Company managed soft discount storeslocated in Moscow (321), St. Petersburg (249) and other Russian areas (161), 183Company managed supermarkets across Central Russia and Ukraine, including 108stores in Moscow (Moscow region and Yaroslavl region), and 16 Company managedhypermarkets. As of 31 March 2008, X5's franchisees operated 711 stores across Russia andKazakhstan. In accordance with its preliminary unaudited data, the Group's net sales for thefull year 2007 reached USD 5,320 mln, an increase of 53% year-on-year. Grossprofit for the period totaled USD 1,404 mln, EBITDA amounted to USD 479 mln.Full year 2007 net income reached USD 141 mln. X5 Retail Group N.V.'s net retail sales for the first quarter 2008 surged 61% inUSD terms and reached USD 1,775 mln. For further details please contact Anna Kareva Elena CherkalovaIR Director PR ManagerTel.: +7 (495) 980-2729, ext. 22 162 Tel.: +7 (495) 950-5577e-mail: anna.kareva@x5.ru e-mail: elena.cherkalova@x5.ru Important Disclaimers This announcement includes statements that are, or may be deemed to be, "forward-looking statements". These forward-looking statements can beidentified by the fact that they do not only relate to historical or currentevents. Forward-looking statements often use words such as" anticipate","target", "expect", "estimate", "intend", "expected", "plan", "goal" believe",or other words of similar meaning. By their nature, forward-looking statements involve risk and uncertainty becausethey relate to future events and circumstances, a number of which are beyond X5Retail Group N.V.'s control. As a result, actual future results may differmaterially from the plans, goals and expectations set out in theseforward-looking statements. Any forward-looking statements made by or on behalf of X5 Retail Group N.V.speak only as at the date of this announcement. Save as required by anyapplicable laws or regulations, X5 Retail Group N.V. undertakes no obligationpublicly to release the results of any revisions to any forward-lookingstatements in this document that may occur due to any change in its expectationsor to reflect events or circumstances after the date of this document. *** These materials are not an offer for sale of securities in the United States.Securities may not be offered or sold in the United States absent registrationwith the United States Securities and Exchange Commission or an exemption fromregistration under the U.S. Securities Act of 1933, as amended. X5 Retail GroupN.V. has not registered, and does not intend to register any portion of anyoffering in the United States and does not intend to conduct a public offeringof GDRs in the United States. This communication is only being distributed to and is only directed at (i)persons who are outside the United Kingdom or (ii) investment professionalsfalling within Article 19(5) of the Financial Services and Markets Act 2000(Financial Promotion) Order 2005 (the "Order") or (iii) high net worthcompanies, and other persons to whom it may lawfully be communicated, fallingwithin Article 49(2)(a) to (d) of the Order (all such persons in (i), (ii) and(iii) above together being referred to as "relevant persons"). GDRs are onlyavailable to, and any invitation, offer or agreement to subscribe, purchase orotherwise acquire such GDRs will be engaged in only with, relevant persons. Anyperson who is not a relevant person should not act or rely on this document orany of its contents. This document is not a public offer or advertisement of securities in theRussian Federation, and is not an offer, or an invitation to make offers, topurchase, sell, exchange or transfer any securities in the Russian Federation orto or for the benefit of any Russian person or entity. Information contained inthis document is not an offer, or an invitation to make offers, sell, purchase,exchange or transfer any securities in the Russian Federation or to or for thebenefit of any Russian person, and does not constitute an advertisement of anysecurities in the Russian Federation. The securities of X5 Retail Group N.V.have not been and will not be registered in Russia and are not intended for "placement" or "circulation" in Russia. This information is provided by RNS The company news service from the London Stock Exchange