Sabanci targets lead in Turkish retail consolidation as it eyes Migros

By bne IntelliNews May 6, 2013

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Contributing to the ongoing consolidation story in the rapidly growing Turkish retail sector, Sabanci Holding followed up last week's acquisition of a majority in its Carrefour JV by suggesting it's eyeing a bid to take over Migros - the country's biggest supermarket by sales - which would turbo boost its expansion.

"We will consider acquisitions for inorganic growth in the strategic plan we will prepare, including a Migros buyout," Haluk Dincer, head of the retail group at Sabanci, told a news conference on May 3, according to Bloomberg. "I don't think the possible acquisition of Migros will create any violation of competition law."

After months of conflict over the CarrefourSA JV's performance with its French partner, Sabanci last week announced a deal that will see it buy a 12% stake for TRY141m (€60m), which hands it control. According to Erste analysts, the French partner "which was aware the previous structure could not prevail in its current form, but also did not want to fully exit from the promising Turkish market, had to accept a lower deal price."

With Sabanci having sold a non-controlling 40% stake in discounter DiaSa, to Yildiz Holding for TRY128m on April 19, the huge holding clearly hopes to use the Carrefour JV as a launch pad for an accelerated expansion of its retail operations, which is one of its highest growth sectors, despite interests in power, banking, and construction. Electronics retailer Teknosa has put in some of the most impressive growth in the group, and media reports suggest its CEO Mehmet Nane will take over at CarrefourSA.

Dincer said Carrefour is targeting annual sales growth of 15%. "We know CarrefourSA is under grown. We will do our best for fast and profitable growth," he said, before adding that a share float to increase the current free float of 3% could be one method of raising the funds to power the plans.

The sale of Migros by the group of private equity investors led by BC Partners Ltd that currently hold it has been on the cards for some time. The company's share price rose 4.7% following Dincer's comments, heading to a two-year high, reports Bloomberg. By way of contrast, CarrefourSA's stock slumped to a 11.5% loss.

However, Sabanci stock also rose, powered by the huge leg up an acquisition of Migros would offer its retail operations. The target has turnover around 2.5 times that of CarrefourSA, and levers a better margin out of its 888 stores.

"We would perceive such a move as giant step in terms of consolidation in the organized retail sector, which would trigger a higher level of consolidation in the overall market as well (capturing the market share from unorganized retail players)," the Erste analysts suggest. "Although the price set in such a deal is a critical factor, we would still welcome CarrefourSa's possible acquisition of Migros as it will enable huge scale advantages and a credible presence throughout Turkey."

At the same time, speculation over large scale consolidation in the Turkish retail market has long been doing the rounds. Late April saw unconfirmed reports that the Anadolu Group has initiated talks with Migros, while Yildiz Holding is now said to be planning to acquire retailer Onurex's 115 stores. However, Erste suggests "a meaningful amount of consolidation would not take place immediately, but rather in the long run".

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