Drama in Lenta takeover bid as minorities prefer Magnit to Mordashev

Drama in Lenta takeover bid as minorities prefer Magnit to Mordashev
A bidding war has broken out over the shares in Russian supermarket chain Lenta
By Vadim Dumes in Paris April 11, 2019

Minority shareholders of Russian retailer Lenta have raised questions about the acquisition of the company by Severgroup of steel tycoon Alexei Mordashov and back a competing bid by retailing peer leading supermarket chain Magnit, the Financial Times and Vedomosti daily reported on April 10 citing unnamed sources.

Magnit has submitted a non-binding proposal to acquire 100% of Lenta’s business that is now being considered by Lenta and the minority shareholders.

“On April 1, after agreements had been reached by Severgroup with each of TPG and EBRD, and shortly before the Offer Announcement was released, Lenta received an indicative, non-binding proposal from Magnit to acquire “100% of Lenta’s business for an all-cash consideration corresponding to $1,779,525,836” and implying an equivalent value of US$ 3.65 per Lenta GDR. The Lenta Independent Directors have asked Magnit to confirm whether it wishes to pursue a transaction with Lenta in light of Severgroup agreeing to acquire Lenta GDRs carrying approximately 42% of Lenta’s voting rights from TPG and EBRD and, if so, to provide clarity around the timing, conditionality and deliverability of any such transaction and precisely what Magnit is proposing to acquire. Magnit has not yet provided those details,” Lenta said in a press release clarifying the details of Magnit’s offer.

As reported by bne IntelliNews, Russia's second-largest retailer Magnit showed interest in Lenta, shortly before the deal with Mordashov was closed, who owns the Utkonos online grocery store.

Under a binding agreement announced on April 1, Lenta's main shareholders TPG and the European Bank for Reconstruction and Development (EBRD) were to sell their 34.44% and 7.47% stakes in Lenta respectively, to Severgroup for $3.60 per GDR. The agreement is conditional upon Federal Anti-Monopoly Service (FAS) approval by 31 May and is set to trigger a mandatory buyout cash offer to minorities at the same price. 

Reportedly, the minorities are interested in the new bids as it is higher than the $3.60/GDR offered by Severgroup. Magnit was looking to consolidate 100% of Lenta at $3.65 per GDR.

The letter sent to the BoD of Lenta and Magnit is signed by Prosperity Capital, Aberdeen Standard Investments, Bestinver and a group of unnamed private investors, according to Vedomosti daily.

"We anticipate further details about the minorities' request, as well as about the grounds for stopping the sale to Severgroup, if any, while there are uncertainties over the key shareholder transition and the latter’s subsequent strategy," VTB Capital commented on April 10, leaving the recommendation for Lenta at Under Review.

Some of the minorities were buying into Lenta at the IPO in 2014 at $10 for GDR. Analysts surveyed by Vedomosti remind that hypermarket format in Russia is following an imminent global trend, which makes the minorities sceptical over the strategy of new investor with no experience in retail.