Lenta buys the Finnish chain K-Ruoka. What Happens to K-Raut Stores After Purchasing Leroy Merlin
The Federal Antimonopoly Service has allowed Lenta to buy the business of the Finnish hypermarket chain K-Ruoka, the Vedomosti newspaper writes. The deal will be closed on November 30, added a representative of Lenta. The chain will get 10 hypermarkets and one supermarket "K-ruoka" in St. Petersburg and the Leningrad region and three land plots... The transaction amount is 11 billion rubles.
The K-Ruoka hypermarkets are open until November 30, and already on December 7 they will open under the Lenta signboard, say two employees of one of the chain's hypermarkets. On Wednesday, November 23rd, K-Ruoka announced a sale of alcoholic beverages with a 50% discount. A person who visited one of the chain's hypermarkets that day Leningrad region, told that there was an incredible excitement going on there. Visitors literally swept goods off the shelves. The same thing happened on Thursday in one of the stores in St. Petersburg, which was visited by a Vedomosti correspondent. Many of the shelves were half-empty, long lines to the checkout counters stretched across the hall. By evening, in one of the hypermarkets, instead of alcohol, there was lemonade on the shelves. In the last two days of work - November 29 and 30, discounts will be announced for perishable and other products, said a hypermarket employee. A spokesman for K-Ruok declined to comment.
Finnish Kesko reduces presence in Russia
To transfer alcohol to Lenta, K-Ruoka needs a license for the wholesale trade in alcohol, it follows from the answers of the lawyers of Kachkin and Partners and the law office A2. But the network does not have one, it follows from the data of Rosalkogolregulirovanie. Perhaps, the owner of the brand, Kesco Food Rus LLC, did not have time to obtain a new license. The company's talks were announced on October 21. The general term for issuing a new license is 30 days, but it can be extended for another 30 days, says Artem Berlin, a lawyer at corporate and arbitration practice at Kachkin and Partners. K-Ruoka has been systematically reducing purchases from suppliers since the announcement of the deal, so its inventory is low, said one of the suppliers.
The influx of people in connection with the sale of alcohol stimulates sales of other goods in the hypermarket, says Mikhail Burmistrov, General Director of Infoline-Analytics. Indeed, many visitors are disappointed when they find out that the discounts in the store are valid only for alcohol, but still they do not leave.
Discounts of 50% on alcohol mean that the retailer is selling it at a loss, says a top manager of the federal retail chain. According to him, the premium on elite alcohol can be 30-35%, maximum 40%, but this is very rare cases... The discount is very serious, agrees Vadim Drobiz, Director General of the Center for Research on Federal and Regional Alcohol Markets. But in some cases its size may be less due to the minimum retail prices for alcohol, which are set by the state.
Lenta has no obligation to purchase inventory and this is a standard practice when changing the owner of a retail facility in the FMCG sector, Mikhail Burmistrov, general director of Infoline-Analytics, knows. Lenta has a completely different product matrix, so the retailer will fill the hypermarkets with a new one, says one of its suppliers. The goods will not be transferred to Lenta from K-Ruok, new supply agreements have been signed with Lenta to the addresses of the Finnish chain stores, confirms the commercial director of the Piskarevsky dairy, Georgy Zhitmarev.
As it became known, "" "" plans to acquire a network of Finnish hypermarkets "" in Russia. The chain has 11 stores in St. Petersburg and the Leningrad Region (with a total sales area of about 49.2 thousand m2), its turnover under RAS in 2015 amounted to 7.7 billion rubles. According to Infoline, Lenta's share of the food market in St. Petersburg is 13.8%, and K-Ruoki's is 0.7%.
Both sides confirmed the fact of negotiations, and late Friday night published information about it on their websites, declining to comment further. According to market participants, Kesko planned to earn at least 13-14 billion rubles for the K-Ruoka network. At the same time, the holding has invested twice as much in the development of the network since 2012. However, no buyers were found for this amount. Experts have estimated the deal at 11 billion rubles. The parties are to announce the agreements reached today.
Nimble "Ribbon"
Negotiations with Kesko on the purchase of the K-Ruoka network were carried out by many retailers, including "" and "". “But Lenta beat the price by offering 20% more than the others. Kesko really wants to close the deal by the end of the year,” says a top manager of one of the hypermarket chains. "The deal will amount to 10-11 billion rubles. Lenta representatives are already attending K-Ruoka meetings," said a source familiar with the negotiations.
That "K-ruoka" was put up for sale, "DP" wrote in May of this year. Market participants pointed out that the main reason was the inefficiency of the network. “Out of the entire chain, only two stores show growth in comparable revenue, the rest are losing,” the former top manager of K-Ruoka said at the time. It is interesting that Oleg Buyalsky, a former member of the Board of Directors of Auchan Russia and COO of Lenta, has been developing the network for all 5 years of its presence on the Russian market.
According to the general director of Infoline-Analytic Mikhail, the cumulative accumulated loss of K-Ruok as of July 1, 2016 exceeded 6 billion rubles, and its net debt exceeded 7.5 billion rubles, payments of only interest on loans in 2016 would have exceeded 400 million rubles. "In fact, the deal allows Kesko to exit the Russian business in the FMCG segment with minimal losses, which for the second year generates 2 billion rubles in losses and does not demonstrate any prerequisites for breaking even," says Mikhail Burmistrov. The expert estimated the amount of the transaction at 11 billion rubles, taking into account operating and under construction hypermarkets, as well as land plots.
General Director of "" Sergei Fedorov believes that the reasons for the departure of "K-Ruoka" from the Russian market are primarily political, in addition, counter-sanctions did not make it possible to sell the Finnish assortment, and as a result, it became the same as that of many other retailers.
Nikolay Gabyshev, Managing Partner of Pollyanna Capital Partners, believes that the Finnish chain will be a good acquisition for Lenta, as the company will be able to strengthen its position in St. Petersburg. At the same time, retailers believe that out of 11 objects, only four - on Parashutnaya, Planernaya, Urkhovskaya streets and in Vsevolozhsk (next to Lenta) - are interesting, the rest are not very well located. Lenta will be able to increase sales in K-Ruoki stores, but sooner or later "hannibalization" will begin between the stores inside Lenta itself in St. Petersburg, since it already has a lot of them.
As for Kesko's other Russian business, K-rauta DIY stores, Mikhail Burmistrov believes that the company will not sell them. "The DIY chain continues to develop. For example, in 2016, K-Routa bought one of the hypermarkets from the Metrica chain. The chain, although it has suffered losses over the past 5 years, is significantly smaller than K-Ruoka ( 492 million rubles in 2015), and the net debt is only 244 million rubles, "the expert says, stressing that Kesko does not lose hope of reducing losses.
Finnish call
Kesko Holding has been trying to enter the Russian retail food market since 2008. Then the situation was the opposite: Lenta was put up for sale because of the shareholder wars, and Kesko claimed to buy it. And even filed a petition with the FAS for the acquisition of LLC "Lenta" (filed subsidiary Kesko Food - Cassa Oy). However, later Kesko notified the anti-monopoly service that the company had failed to reach an agreement on the acquisition of the network.
In 2012, Kesko independently entered the Russian market with the K-Ruoka brand. At the same time, the main competitor of Kesko in Finland - the SOK corporation - entered St. Petersburg in 2008 with the Prisma chain, which today has 17 stores: six hypermarkets and 11 supermarkets.
Now the network has also frozen development plans in Russia. However, according to general director Jarmo Paavilainen, the company has no plans to leave the St. Petersburg market. "The drop in demand has really affected trade, but we expect a recovery next year," says the top manager.
In 2013, the Kesko report reported that the holding plans to spend over 100 million euros per year on expanding the K-Ruoka food hypermarket chains and K-raut construction chains in Russia. Moreover, the main investments and prospects were associated precisely with the product direction, and Russia was considered the key region, where retail grew by about 10% per year. In 2015, "K-Ruoka" planned to enter the Moscow region, but never did it.
“Perhaps Kesko realized that competition in the hypermarket segment in St. Petersburg is intensifying, and the holding is not ready to invest new investments. Kesko entered the market when the euro rate was 40 rubles, and today it is almost 70,” says Nikolai Gabyshev.
Feel comfortable
"The format of hypermarkets does not feel the best way... The consumer seeks to save money, reduce the number of purchases. Therefore, formats with a large assortment are at risk, "says Natalya Kolupaeva, senior analyst at Raiffeisenbank.
Nevertheless, for Lenta, the hypermarket format is just the main one, and it is increasing the pace of development. “We are developing in accordance with the schedule and intend to open 40 new hypermarkets in Russia this year, we expect to surpass our ambitious goal of doubling the retail space of the chain by December 2016. Today we have already formed a portfolio of projects for 2017, so we started working over the projects of 2018, "the retailer said last week. As of September 30, 2016, Lenta's total retail space in the country amounted to 963.4 thousand m2 (+ 22.3% to the level of 2015).
I'm not sure that Lenta paid 20?% More than other applicants. Adequate shareholders are sitting there, and if they read about it, they should expel the entire management. Okay 1–2?%, But 20?% Is too much! Finns entered the market when I was working at Pyaterochka in St. Petersburg. In order for the network to reach St. Petersburg and receive mass fraction, you need to invest a lot of money. And their investment should have been greater. K-Ruoke needed to actively develop its network - to open stores or buy them. But they hesitated. Obviously, this is not the last Finnish retailer to leave the market.
That the chain of DIY stores "K-Rauta", owned by the Finnish holding Kesko, is leaving the Russian market. 12 out of 14 stores were sold to a direct competitor - Leroy Merlin chains, 2 more will be closed by mid-summer. A week and a half after the announcement of the deal, we have collected the main facts and statements - and tell in detail how the new owners plan to proceed with the purchase.
Leroy Merlin bought 12 K-Raut stores: 8 in St. Petersburg, 3 in Moscow and 1 in Kaluga. The company did not buy hypermarkets in Tula and Yaroslavl, they will stop working by mid-summer 2018. The deal was valued at RUB 12 billion.
Leroy Merlin only acquired the K-Rauta buildings- neither the staff, nor the brand, nor the goods were included in the deal. By purchasing hypermarkets, the retailer expanded the area of its stores by 126 thousand square meters. m (including warehouses).
All purchased stores will be closed for renovation- for up to 6 months. The exact closing dates for the outlets have not yet been announced, but large-scale sales have already started on the network (and even started for the goods). All stores will reopen under the Leroy Merlin brand and concept.
The new owner will lay off about 1,800 employees of K-Rauta. The new staff - about 1200 people in St. Petersburg - will be recruited on a general basis. “As soon as the former employees of K-Routa finish all their business there and start looking for a new place, we are open to them. On a general basis, they will be able to go through all stages of interviews in order to become or not to become an employee of Leroy Merlin, ”said Alexey Lesnikov, regional director of Leroy Merlin Russia in an interview with Delovoy Petersburg.
The number of Leroy Merlin stores in St. Petersburg will triple after the purchase of K-Rauta- there will be 12 of them. Part of the hypermarkets after the integration of the networks will be next to each other, however, according to Lesnikov, the company does not see this as a problem. In the near future, Leroy Merlin has no plans to further expand the network in the city.
The company will not "change globally" its approach to suppliers- This was also stated by Lesnikov. In turn, the general director of Leroy Merlin Vincent Zhanti told reporters that the chain now has 44 suppliers in St. Petersburg, almost a third of them coincide with the suppliers of K-Routa. “Most likely, we will develop cooperation with new suppliers,” said Zhanti.
With the sale of the K-Rauta network, the Finnish concern Kesko left Russia completely. The company began to get rid of Russian assets back in 2016 - then the K-Ruoka FMCG chain concern (for 11 billion rubles for the St. Petersburg Lenta) and the Intersport chain of sports stores. Kesko has been working in Russia for 20 years.
In 2016, K-Rauta occupied 1.1% of the building materials market in Russia, the chain's revenue for the same year amounted to 13.1 billion rubles. After the closure of the Russian division under the K-Rauta brand, 170 stores continue to operate in Finland, Sweden, Estonia and Latvia.
Leroy Merlin is the largest DIY retailer in Russia. Before the purchase of K-Rauta, the company's network consisted of 75 hypermarkets (market share over 16%); in 2016, the turnover of the Russian division of the retailer amounted to 186 billion rubles.
Alexey Maksimuk
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Lenta announces the closure of the acquisition of Kesko's Russian food retail business, currently operating under the K-Ruoka brand.
"Tape" Acquired assets
Kesko's retail business includes 10 hypermarkets and 1 supermarket operating under the K-Ruoka brand in St. Petersburg and the Leningrad Region, as well as three land plots in the Leningrad and Moscow Regions. Most of the hypermarkets were opened in 2012-2015, with two stores opened in 2016. The total sales area of the acquired stores is 42.5 thousand square meters. m, of which about 40.2 thousand sq. m are owned, and 2.3 thousand square meters. m - for rent. The stores are fully consistent with Lenta hypermarkets in compact and supercompact formats, and almost all locations fit organically into the geography of Lenta stores in St. Petersburg and the Leningrad Region. The high ownership share of stores is fully consistent with Lenta's strategy. Kesko's retail business is owned by six legal entities that were acquired in the course of the transaction.
Lenta CEO Jan Dunning commented:
“We are very pleased that we were able to successfully complete the deal with Kesko to buy their business in Russia. The deal will significantly strengthen Lenta's position in St. Petersburg, providing further large residents city access to our shops close to home. The company will become the largest hypermarket operator in the city. The shops are located in excellent urban locations. The stores will operate under the Lenta brand, with our assortment, logistics and business processes of the company. We expect the store integration process to be generally completed by the end of the year. Taking into account this transaction, we expect to open at least 50 hypermarkets by the end of 2016 ”.
Deal approval and financing
The transaction was approved by the Federal Antimonopoly Service of Russia in November. The deal is closed, no additional approvals are required. Further, the company will take certain administrative steps, including the registration of assets and lease agreements, renewal of some licenses, but these actions will generally be certified by the end of this year. The transaction was financed from the company's own funds, as well as through a long-term credit line from a Russian bank at a rate lower than the current refinancing rate of the Bank of Russia, which will entail a further decrease in the average effective cost of Lenta's debt. JP Morgan and VTB Capital advised the transaction.
Transaction price
The aggregate price of the transaction amounted to 11.4 billion rubles, which is 0.4 billion rubles more due to adjustments at the closing of the transaction compared to the previously announced total transaction base of 11.0 billion rubles. The increase is due to the presence on the balance sheet of a larger than previously expected amount of Money and their equivalents. Lenta estimates that the value of the acquired real estate and other fixed assets as positive working capital and other non-fixed assets approximately corresponds to the paid value. The transaction will not result in a change in goodwill in Lenta's balance sheet.
Integration
The integration of Kesko stores into the Lenta network will begin immediately. Each of the acquired stores will close for about a week from December 1 to reopen under the Lenta brand. The stores will operate in the same way as other Lenta stores in St. Petersburg - under the Lenta brand, with the company's assortment, using its logistics, IT infrastructure and business processes. The staff of Kesko stores have already become part of the Lenta team. The company will make every effort to minimize the inconvenience of buyers and employees during the integration period. Lenta regards the highly qualified employees of Kesko stores as its great advantage and welcomes them to its staff. Lenta does not plan to cut staff. Kesko's retail headquarters will be integrated into Lenta's office. Operational integration will be generally completed by the end of 2016
Forecast in connection with the transaction
Revenue. The effect of the deal on Lenta's revenue in 2016 will be insignificant (less than 0.2% of 2016 revenue) due to the short period between the closing of the deal and the end of the year, as well as due to the closing of stores in early December due to rebranding and other integration measures. The deal is expected to add 3-4 p.p. to the dynamics of the company's revenue growth in 2017, taking into account the effect of cannibalization. The company expects the acquired stores to reach or exceed Lenta's average sales density by mid-2018.
EBITDA and net profit margin. The deal will have a negative impact on EBITDA margin of -0.1 p.p. and net profit at the level of -0.2 p.p. due to one-time integration costs. The effect on EBITDA and net income margins is expected to be negligible in 2017. The company expects that the acquired stores will reach or exceed Lenta's average profitability indicators by 2018.
Capital investments. All Kesko stores are newly built and to high standards, so capital investments in rebranding and adaptation to the Lenta format will be negligible. In the near future, Lenta will optimize the operation of its rented and its own DC in St. Petersburg without significant capital investments. In the medium term, additional logistics capacity in St. Petersburg will be required to support further growth in the number of hypermarkets and supermarkets. Today the company is studying possible options solving this problem. Lenta's updated capex forecast for 2016 is RUB 55-60 billion, including the cost of acquiring Kesko stores.
Forecast for new Lenta store openings
New forecast for the number of hypermarket openings. The store acquisitions will increase the previously announced forecast for the opening of at least 40 new hypermarkets in 2016. Now Lenta plans to open at least 50 hypermarkets, including Kesko stores. If the number of stores opened in 2016 significantly exceeds this forecast, then the company can optimize the number of projects for 2017 in such a way as to open at least 90 hypermarkets in total in 2016-2017.
New forecast for the number of supermarket openings. The deal will not affect the outlook for the opening of supermarkets.
The hypermarkets of the Finnish holding Kesko are finally leaving the Northern capital. They were swallowed up by the domestic "Lenta".
Rumors have been rumors that K-Ruoka plans to "pack their bags" for a long time, but the deal between the two giants has come to a logical conclusion only now. The heads of the companies bargained for 11 billion rubles in cash for 11 stores, and now Finnish hypermarkets will operate in St. Petersburg and the Leningrad region until November 30. However, it should be noted that the sale of K-Ruoka's grocery business to a Russian retailer affected to some extent the residents of the Northern capital.
In addition to the fact that K-Ruok employs about 1,300 people, and no one asked about the preferences of Petersburgers in choosing where to buy food, the deal has already caused a public stir of a different nature. The most noticeable consequence of the withdrawal of hypermarkets from the market for the townspeople was a very generous sale. According to the announcements on the official website of the network and in stores, from November 23 to 30, they give away all alcoholic beverages at half price except for foam, which is more than relevant for many on the eve of the New Year. The sale is valid in all stores of the Finnish Kesko Group, of which there are 11 units in the Northern capital and the region. In fact, on the very first day of the event, this action managed to turn into a real alcoholic apocalypse.
The huge queues were heard from social networks and even conversations on the streets of the Capital of Culture. The statements about the incredible generosity of "K-Ruoka" had to be checked personally, for which the correspondent of "Nevskiye Novosti" went to the first store he came across.
The first thing that caught my eye was those very huge queues, akin to which are only New Year's, and even then not always. The second distinctive feature- a noticeably modified food basket for the average consumer. Instead of the usual groceries in the carts, they cheerfully jingled glass bottles that do not sell from 22:00 to 11:00 and to persons under the age of 18. Moreover, the amount that St. Petersburgers buy up can hardly fit in the head. In some cases, the carts were laden with boxes from various manufacturers. Different because no more than 12 bottles of the same name are released into one hand. At the same time, one should not forget that St. Petersburg, according to recent studies by Sober Russia, not only did not rank among the most drinking regions, but, on the contrary, was included in the top 20 sober cities.
Inside the store, it seemed that they were selling the last alcohol on Earth - the shelves were practically empty, and a huge crowd was hovering around the lonely bottles on the shelves. No offense to the store staff, but merchandisers are very weak in coping with the influx of greedy intoxicating drinks among St. Petersburgers. More than a clear proof of this fact was the situation that happened right in front of the correspondent: an employee of "K-Ruoka" drove a cart with rum to an empty shelf and began to carefully display the goods on the counter. For the sake of fairness, it should be noted that the man worked quickly and accurately, but the buyers acted even more promptly - at the end of the procedure, only a few bottles of the brought cart remained on the shelf. Fortunately, it did not come to battles for the coveted bottle. At least in front of the Nevskiye Novosti correspondent.
