X5 Retail Regulatory News (FIVE)

X5 RETAIL GROUP to acquire kopeyka discounter chain:

builds on Soft discounters' success and adds to x5's opportunities for leadership, growth and value creation

long-term RUble financing for transaction in place, well within debt covenants after closing

federal anti-monopoly service (FAS) consent has been received

Amsterdam, 6 December 2010- X5 Retail Group N.V. ("X5"), Russia's largest retailer in terms of sales (LSE ticker: "FIVE"), announced today that it has signed an agreement to acquire Kopeyka retail chain ("Kopeyka") in a transaction with a total enterprise value of RUR 51.5 billion including assumption of debt.

Kopeyka is the number three soft discounter in the Russian food retail market in terms of revenue and number of stores. As of the signing date, Kopeyka operates more than 660 stores with total selling area over 290,000 sq.m. It is expected that by the end of 2010 Kopeyka will have rights for approximately 700 stores.

Kopeyka reported net revenues of RUR 59.3 billion and EBITDA of RUR 3.8 billion for the 12 month period ending June 30, 2010, according to financial statements reviewed by auditors.

Kopeyka operates soft discounter stores in the European part of Russia, with more than 50% of its business in Moscow and Moscow region.

As a result of the transaction, X5 will reinforce its number one position in the Russian retail market with a substantial increase in scale:

- Leadership in discounters, adding ~ 700 stores;

- Expanded discounter presence in Moscow and Moscow region (75% increase in number of

stores based on June 30, 2010);

- Total combined selling area of 1,400 ths. sq. m at June 30, 2010 (25% increase over X5

stand-alone);

- Pro forma1 combined retail turnover of RUR 360 billion for the 12 months to June 30, 2010

(20% increase);

- Pro-forma1 combined EBITDA of RUR 27.7 billion for the 12 months to June 30, 2010

(16% increase).

1 Pro-forma includes unaudited results not considering for potential differences in accounting policies

The transaction was approved by the Russian Federal Anti-Monopoly Service (FAS). It is expected that the transaction will close in the second half of December 2010.

Further information on Kopeyka is provided in this press release and in X5's presentation to investors on the Company's website.

Lev Khasis, CEO of X5 Retail Group, said:

"X5's multi-format growth has been led by soft discounters' success in winning customers and delivering industry-beating like-for-like sales performance. Acquiring Kopeyka reinforces X5's number one position in the Russian retail market, significantly expanding our soft discounter presence in Moscow and Moscow region.

Kopeyka is a strong retail operator with good store locations, infrastructure and qualified personnel. We have identified significant opportunities for growing sales densities of acquired stores and improving efficiency to support margins. Economies of scale and integration of the Kopeyka asset base will further increase X5's operating leverage in purchasing, distribution and other areas. With strong management at different levels and advanced infrastructure and technologies, Kopeyka also contributes expertise and capacity to support X5's growth.

Finally, the acquisition of Kopeyka will enable X5 to deliver even better value for Russian consumers. We will provide the lowest prices on the market for an increased number of lower income customers, while upgrading assortment in fresh produce and other items and stepping up expansion of discounters to reach more consumers underserved by the competition."

Andrei Gusev, X5's M&A and Business Development Director, added:

"Kopeyka team, to their credit, have built a great business and we are delighted they have chosen X5 as a partner. This is an attractive deal that meets our financial objectives is supposed to generate significant value for X5's shareholders. Synergies will ramp up as we integrate Kopeyka over the next two years, and the acquisition will be substantially accretive afterwards. The quality of Kopeyka's assets was underlined by serious interest from international players, while transaction valuation is in line with recent IPO activity in the Russian retail sector."

Business Rationale and Synergies

X5's soft discounter format, Pyaterochka, has delivered industry-beating performance and is a key growth driver of X5's multi-format strategy. Its brand promise of "Lowest price on the market on 100% of assortment" has been phenomenally successful with Russian consumers. X5 has stepped up its store expansion plans in discounters in 2010, and this will continue to be a major priority for driving organic growth in 2011. Pyaterochka is the leader in discounter format achieving the best results in sales per sq.m for LFL stores of around 399,000 RUR and total LFL sales of 17% among all discounters in Russia, as of year ended 31 December 2009.

The transaction will establish X5 as the number one leader in soft discounters by sales volume, with a strong position in the critical Moscow and Moscow region. The transaction will result in a 75% increase in X5's discounter store presence in Moscow and Moscow region based on Kopeyka's 317 stores plus 422 X5's discounters as of 30, June 2010. X5 Retail Group's market share in Moscow and Moscow region will amount to around 13% post-transaction, providing significant room for future growth. X5's discounter store presence in other regions of other European Russia will also increase significantly, thus, X5 reinforces its leadership in the Russian core format and key markets by far leaving the closest competitors behind.

This transaction offers significant scope for generating synergies and supporting X5's strategy for growth, leadership and value creation:

·; We have identified substantial scope for efficiency improvements and cost control to support margins. Kopeyka's gross margins will benefit from an immediate improvement in purchasing terms by leveraging X5's larger scale. At the same time we will cut administrative costs and increase operating efficiency to fund partial reinvestment in customer value propositions of future converted stores. 

·; Kopeyka's stores are highly compatible with Pyaterochka's standards but present significant opportunities to raise like-for-like (LFL) sales performance closer to X5 performance levels. We believe there is the potential to increase sales density significantly over the next few years through improvements in assortment, pricing and other areas.

·; Kopeyka has a strong private label programme with ~ 20% sales penetration and more than 550 SKUs. The business also has strong in-store productivity, making successful use of pre-packaged products as well as logistics and technology innovations to reduce staffing requirements and increase efficiency at store level.

·; Kopeyka brings distribution assets with 7 DCs and a centralisation rate of c. 90%. This provides X5 with additional capacity for growth as well as business expertise in logistics operations.

X5 will convert Kopeyka stores to Pyaterochka over a two-year period to deliver outstanding value for our customers and shareholders. The timetable will focus mainly on back-end operational and systems integration in 2011, with most store conversions taking place in the second half of 2011 and full-year 2012.

Financing

The transaction is structured as cash payment for 100% of the equity of Kopeyka and assumption of net debt of no more than RUR 16.5 billion.

The deal will be financed via combination of long-term facilities with Sberbank, which extends the leading Russian bank's successful partnership with X5. RUR 30 billion will be financed through a new long-term ruble financing, while the rest will be withdrawn under the existing credit lines. The new Sberbank facility takes the form of a five-year unsecured ruble-denominated line of credit equivalent to USD 1 billion, with final maturity date in December 2015. Credit terms are comparable with those provided by leading western banks.

The Company plans to refinance Kopeyka's existing bank debt on improved terms through amended facilities with Kopeyka's current lenders and through available credit lines from X5's existing relationship banks.

Upon deal completion, it is expected that X5's net debt to EBITDA level will be slightly above 3 well within the Company's balance sheet target ratios and credit facilities covenants.

Approval of Russian Federal Anti-Monopoly Service

The transaction was approved by the Russian Federal Anti-Monopoly Service (FAS). In accordance with the FAS decisions dated 09.09.2010 and 17.09.2010 the subsidiaries of OJSC "TD "KOPEYKA" will terminate trading activity at 27 stores before the completion of the transaction.

Advisors

X5 has engaged Investment Banking division of Sberbank to act as its sole financial advisor and Hogan Lovells to act as its legal advisor. Financial and tax due diligence was conducted by KPMG. Escrow services are provided by Credit Suisse Group of companies.

Kopeyka has engaged URALSIB Capital and Morgan Stanley to act as its financial advisors. Skadden, Arps, Slate, Meagher & Flom LLP. acted as Kopeyka legal advisers.

Analyst and Investor conference call

Lev Khasis, CEO of X5 Retail Group, and Anton Volyanskiy, Acting CFO of X5 Retail Group, will be hosting a conference call for analysts and fund managers on December 6 at 18:00 Moscow time, 15:00 London time, 10:00 New York time. The dial-in details are provided below:

UK Toll Free: 0800 694 0257

Russia Toll Free: 8108 002 097 2044

USA Toll Free: 1866 966 9439

International Dial In: +44 (0) 1452 555 566

Conference ID: 30070247 

Note to Editors:

About Kopeyka

Founded in 1998 in Moscow, Kopeyka is Russia's number three soft discounter chain in the Russian food retail market in terms of revenue and number of stores. Kopeyka had 2009 revenues of RUR 54.9 billion and EBITDA of RUR 3.7 billion (audited). For the first half year to June 30, 2010, the company had revenues of RUR 30.2 billion and EBITDA of RUR 1.6 billion.

By the end of 2010 Kopeyka retail chain plans to have 700 stores with total selling area space of c. 310,000 square metres. As of 30 September 2010, Kopeyka retail chain has 642 stores. This included 329 stores in Moscow and Moscow region and 313 stores in other regions of European Russia.

As of September 30, 2010, some 56% of own stores were leased, mostly on long lease terms. Prior to the transaction, Kopeyka completed a franchisee buyout program in November 2010. During Q3 2010, Kopeyka also completed a buyout of real estate from a mutual fund owned by Management Company URALSIB.

The company has 7 distribution centres with around 87 ths. sq. m. of capacity, and Kopeyka's logistics centralisation rate of с. 90% is the highest in the sector. Logistics efficiency benefits from an advanced integrated IT platform, including warehouse monitoring system, GPS-monitoring of fleet and integration of all processes on SAP platform.

About X5 Retail Group

X5 Retail Group N.V. is Russia's largest retailer in terms of sales. The Company was created as a result of a merger between Pyaterochka (soft discounter chain) and Perekrestok (supermarket chain) on 18 May 2006. In June 2008, X5 acquired Karusel hypermarket chain and substantially strengthened its position in hypermarket format.

As at 30 September 2010, X5 had 1,630 Company-managed stores located in Moscow, St. Petersburg and other regions of European Russia, Urals and Ukraine, including 1,232 soft discount stores, 289 supermarkets, 65 hypermarkets and 44 convenience stores.

As at 30 September 2010, X5's franchisees operated 632 stores across Russia.

For the full year 2009 X5's net sales totaled USD 8,717 mln, EBITDA reached USD 736 mln, and net profit amounted to USD 165 mln.

For the first nine months 2010, net sales totaled USD 7,798 mln, EBITDA reached USD 593 mln, and net profit amounted to USD 183 mln.

X5 Shareholder structure is as follows: Alfa Group - 47.9%, founders of Pyaterochka - 23.1%, X5 Management - 1.9%, treasury shares - 0.1%, free float - 27.0%.

 Forward looking statements:

This announcement includes statements that are, or may be deemed to be, "forward-looking statements". These forward-looking statements can be identified by the fact that they do not only relate to historical or current events. 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 because they relate to future events and circumstances, a number of which are beyond X5 Retail Group N.V.'s control. As a result, actual future results may differ materially from the plans, goals and expectations set out in these forward-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 any applicable laws or regulations, X5 Retail Group N.V. undertakes no obligation publicly to release the results of any revisions to any forward-looking statements in this document that may occur due to any change in its expectations or to reflect events or circumstances after the date of this document.