Retail chain Pyatyorochka to take over Perekryostok for $1.365bln


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MOSCOW, April 12 (RIA Novosti) - Discount supermarket chain Pyatyorochka announced Wednesday it had sealed a deal worth $1.365 billion to take over one of its major rivals.

Pyatyorochka will purchase supermarket chain Perekroyostok from Russia's largest privately owned financial and industrial consortium, Alfa Group, and Templeton investment trust.

Alfa Group will purchase 54% of shares in a consolidated company to become its largest shareholder. The company's founding partners will hold 21.2%, and the remaining shares will be distributed among institutional investors.

Pyatyorochka floated on the London Stock Exchange in May 2005, raising about $600 million to develop its retail network. Company sales totaled $1.34 billion in 2005, yielding 7.37 billion rubles (about $257 million) in sales revenues.

Chairman of the Supervisory Board of Alfa Group Mikhail Fridman said the company intended to build up the equity value of the consolidated retailer.

"There are plans to substantially increase its equity value," Fridman said, adding that Alfa Group's further strategy would depend on the market situation. According to Fridman, retail trade was one of the most dynamically developing and promising markets.

Fridman said Alfa Group did not intend to sell its stake in the amalgamated Pyatyorochka retail chain in the near future, but that the company could eventually consider selling if the sector's growth slowed down, or if attractive offers were made.

After its merger with Perekryostok, Pyatyorochka intends to boost sales revenues from the $2.4 billion level of 2005 to $6 billion by late 2008, Perekryostok Chief Financial Officer Vitaly Podolsky said.

Podolsky said the synergy effect from the deal would yield $85 million in 2008, adding that the company planned to have 700 discount outlets and about 240 supermarkets by that time.

The chief financial officer also said the consolidated company would build up its capitalization through own resources and loans. Podolsky said Pyatyorochka had taken out a syndicated loan from foreign banks to finance the deal.

Meanwhile, the international ratings agency Standard & Poor's placed the long-term BB- credit rating of Pyatyorochka on CreditWatch with negative implications immediately after the deal was announced.

S&P said in a statement that its decision reflected the company's increased financial risk after the deal. "It is unclear whether this risk will be sufficiently offset by the expected positive business aspects of the combination, such as increased economies of scale, improved diversification and competitive position, and potential operational synergies," S&P said.

"We estimate that the combined group's total debt to EBITDA after lease adjustments is likely to increase to above 3x, which is higher than the expected range of 2.0x to 2.5x currently factored into the rating on Pyatyorochka. Furthermore, this material transaction may result in changes to the business model and associated financial policy of the combined entity, and will require a detailed assessment," the agency said.

S&P also said it expected to resolve the CreditWatch within 90 days after a meeting with Pyatyorochka's management and a detailed evaluation of the credit implications of the transaction.

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