The main shareholder of Russia's second-largest retailer, Magnit, Sergey Galitsky decided to sell almost all of his stake in VTB. The agreement on the sale of a 29.1% stake in Magnit, an entrepreneur and the president of the state bank Andrei Kostin, signed on February 16 at an investment forum in Sochi and immediately announced a deal. Galitsky this event was not easy. He could not immediately speak, he asked for water, and his voice trembled treacherously during the short speech.
The entrepreneur said that he headed the company for 25 years, but "something must be changed in his life." The decision to sell Magnit, he called difficult, but, he said, he and shareholders have different views on the development of the company. The deal with VTB is the best solution, as the bank has great ambitions, Galitsky stressed. "Further," Magnet "will go without me," - concluded the businessman.
Galitsky will have 3% of the retailer. The transaction must be approved by the Federal Antimonopoly Service. The application has not yet been received, a spokesman for the service said on Friday night.
VTB shares will pay 138 billion rubles for Magnit shares. It turns out that the paper will get to the bank with a discount of 4% to the close of trading on the Moscow stock exchange on the eve - on February 15. According to Kostin, this is one of the largest deals on mergers and acquisitions this year. The whole amount will be paid in cash on the closing day, Magnit said.
For investors, the news about the sale of "Magnet" was a shock. On Friday, the company's quotes collapsed on the London Stock Exchange by 10%, on the Moscow Stock Exchange - by 7.8%.
"Magnet" along with Sberbank are the two most popular Russian securities, says Alexey Krivoshapko, director of Prosperity Capital Management. But from a corporate governance point of view, the deal is "structured ugly," he said. As Krivoshapko argues, in fact, VTB acquires control, and the law requires, when buying more than 30% of the company's shares, to make an offer to redeem the securities to minority shareholders. "They specifically bought a little less to not do it. This is absolutely ugly and worst behavior on the part of the state bank, "Krivoshapko said. - This indicates that he did not care about the market and minority shareholders, it's a spit in the face of all investors. "
Prosperity is a minority investor in Magnit, Krivoshapko explained to Vedomosti. "We have a very small share, but we have achieved equal treatment for all investors and in much smaller companies," the investor added. So far, according to Krivoshapko, the fund is studying how to act in the future in connection with the deal between VTB and the retailer.
Another minority shareholder of Magnit, TKB Investment Partners, agrees with Prosperity's position, says its managing director Vladimir Tsuprov.
Not the best buyer
The fact that VTB became the buyer is "a huge disadvantage for some foreign investors," Tsuprov said. The State Bank, perhaps, will manage to restore the growth of the retailer's business, he argues. But in the stock market a huge canopy can be formed, he fears: "About 10-15% of the capital of" Magnit "can get out of the asset."
First Deputy President VTB Yury Soloviev does not believe that the deal will cause an outflow of foreign funds: "[For example] Sberbank, which is also under sanctions, a huge number of foreign investors." But the motivation of Magnit's investors was completely different than, for example, the motivation of Sberbank investors, Tsuprov disagrees.
A large share of Magnit's value for investors was built on a concrete thing, the investor explains: they bought papers, because they believed in Galitsky. "Now they are offered instead of Galitsky VTB management, which as a cherry on the cake is under sanctions: some managers, and the bank itself."
How to dissolve the "Magnet"
For investors, the Krasnodar Galitsky was an example of the "Russian Sam Walton" - the founder of the world's largest retailer Wal-Mart. The business of Galitsky began with the distribution of cosmetics and household chemical goods in 1994, in the second half of the 1990s. he opened the first food stores. Unlike its competitors, Magnit did not immediately seek to win Moscow and St. Petersburg, but went to small cities and regional centers, remaining profitable and paying dividends.
"Magnet" consciously tried to avoid the two capitals, explained in the mid-2000s. "Vedomosti" is a close person to the company. Russian retail chains were only just beginning to develop. Meanwhile, the population's income and demand grew, so the market was filled with the expectation that large foreign networks would soon arrive in Russia. They would start their expansion from Moscow, and then they would go for the rest of Russia, the interlocutor of Vedomosti said. "Magnet" also wanted to gain time and have time to seriously settle in the regions.
In addition, the emphasis on the province allowed Galitsky to stay in the shadow for a long time. In fact, until the IPO of Magnit in 2006, only a few knew that this was the largest in terms of the number of stores in the country, second only to the revenue of X5 Retail Group. This greatly facilitated the task of finding areas for new stores or, for example, communicating with the authorities, said the source of Vedomosti.
In this case, unlike many entrepreneurs who have grown up to the federal scale, Galitsky did not transfer the headquarters of "Magnit" to Moscow, but left it in Krasnodar. Moscow is "a rather uncomfortable city for life," and people living in the capital are "not very happy," he said in an interview with RBC in 2011. And for the journalist's statement that Moscow has higher incomes, Galitsky replied that he could not buy for money " traffic jams "and" good climate ":" In Moscow [total] 80 days of sunshine a year. "
Despite the crisis of 2008, Magnit actively developed and after a few years became the number one in Russia. First, in 2011, he outperformed the X5 Retail Group in terms of capitalization. In 2012, the competitor's business went very badly: frequent shifts in top management, slowdown in network growth and revenue. And in early 2013, "Magnet" finally overtook the turnover of the main competitor. "I'm afraid of appearing immodest, but for the first time in 15 years, since the opening of the first store, we have become a sales leader," Galitsky commented on this achievement in the company's message.
Demand for a decline
But to retain the leadership for a long time, "Magnet" failed: X5 solved the problem with management, developed a clear strategy for Pyaterochka, updated stores and returned to growth, and Magnit, on the contrary, began to slow down.
First, the retailer explained the slowdown in revenue growth by a drop in the purchasing power of low-income Russians - their main audience - at the end of 2014. But the economy stabilized, and X5, with the updated Pyaterochka, which the consumers liked more than the seemingly less attractive Magnits, in the regions. As a result, in 2017, the leader in revenue again was X5, and on February 13, it regained itself and the title of the most expensive retailer in Russia by market capitalization. "Magnet" remained the leader only in the number of stores.
The first alarming signals in Magnet appeared as early as 2014, then the indicators began to deteriorate, and the understanding that global changes are needed, and the readiness to conduct them in the company never appeared, recalls the general director of Infoline Analytics Mikhail Burmistrov. Apparently, he argues, Galitsky was not ready to admit it, so at first the company held to the position that changes are unnecessary, then - that it is possible to do with point changes that turned out to be cosmetic.
For example, says Burmistrov, at the same time, major investments were made in the renovation of stores and staff was declining. The timing of the reconstruction of stores was too long and was not accompanied by a change in the range, the expert lists. "If X5 first worked out the speed and speed of reconstruction of Pyaterochka, and then launched a massive rapid update, then Magnit began a massive upgrade before learning how to do it quickly," he says.
In the past, in many respects, Magnit was due to its successes precisely point improvements in efficiency in the supply chain, Burmistrov recalls. "But the model, not oriented to the needs of the buyer and the unique value proposition, ceased to be competitive, and Galitsky probably was not ready to admit it," he said. In fact, both Galitsky and Magnit were held hostage to long-term success, Burmistrov sums up.
The fact that retailer management has not been able to take comprehensive measures to resume business growth, many experts interviewed by Vedomosti, are associated with the events of two years ago.
Galitsky was a co-founder of Magnit, along with a partner - Vladimir Gordeychuk. Galitsky once said that his sphere is a common vision, and operational guidance is on Gordeychuk. In early 2016, Gordeychuk prematurely resigned from the post of general director of the operating company of the retailer - JSC "Thunder". Then two sources of Vedomosti explained that the top manager decided to retire.
History has evolved for a long time, says Tsuprov: "The departure of the partner - Gordeychuk, shuffling of top management, appointment to senior positions of distant relatives. But no one expected that she would come to such a result now. " The management of Magnit, weakened by the departure of Gordeychuk, fearing losing his job, for a long time tried to create the illusion that the founder of the network was really good, Burmistrov believes.
Galitsky could not cope with the operational management, say two Vedomosti interlocutors among the partners of Magnit: he could not build a top management team and also could not go on attracting a strong leader from outside. Galitsky must either continue to fight and make radical changes himself or give control, but he is already tired, Burmistrov argues.
"He [Galitsky] is very impulsive, investors told him about the necessary changes, he did not listen," said one of Magnit's partners. It seems that at some point he just psihanul and sold, argues interlocutor Vedomosti.
Sold by myself
The entrepreneur himself initiated the deal with VTB, the bank's representative said. "During one of the conversations, Sergei Nikolaevich [Galitsky] expressed the wish that, probably, it was time for him to sell the company, that he wants to concentrate, as he said, on the problems of children's football," Kostin told Kommersant FM. "If the investor is very unhappy, I must leave," Galitsky said in a short speech on Friday afternoon in front of employees of the Magnit headquarters. Although a little earlier he noted that "the market is now unfairly assessing us." And he explained: Magnit has the best EBITDA and high profit.
Galitsky will leave the post of director general of "Magnit" and other positions in the company: the board of directors has approved a new leader, it will be the current financial director of the retailer Khachatur Pombukhchan. According to a source close to Magnit, the new shareholder will not nominate Galitsky's candidacy and as an independent director in the council: "He [Galitsky] himself is against it."
Investors do not necessarily need the help of the founder of the company for its further management, says senior partner Egon Zehnder Stanislav Kiselev. During due diligence, which can take from several weeks to several months, the investor has the opportunity to plunge into the details of the business and resolve many controversial issues, he says.
Why VTB Stores
With the offer of the transaction VTB itself came out, says a person close to one of its sides. VTB is well acquainted with the business of Magnit. Alexei Makhnev from VTB Capital as an independent director for several years was on the board of directors. And himself Galitsky from 2015 - a member of the supervisory board of VTB. According to one of the partners of Magnit, Kostin and Galitsky have known each other for many years.
The choice of VTB as a buyer is not a big surprise: the bank is one of the few who could afford a deal of this size, besides, VTB often advised Magnit and Galitsky himself - for example, in share deals, commented Raiffeisenbank senior analyst Natalia Kolupaeva . With Sberbank, Galitsky did not discuss the possibility of the deal, said a man close to the state bank. The representative of Sberbank declined to comment.
The investment in Magnit is non-core for VTB Group, but it is a permissive asset that generates profit and pays well, according to Yury Belikov, the main expert of Expert RA: the retailer's capital relative to VTB's capital is small, and the purchase of a stake in it does not create a regulatory risk for the state bank.
The market has big questions about how effectively VTB will manage the retailer, says analyst of "BC Saving" Sergey Suverov. For the bank, this purchase is interesting - the business of Magnit is quite profitable and liquid, he continues: "There is also a certain synergy between the retailer and the state bank: the infrastructure of Magnit can be used to sell banking products, and the Russian Post may be involved in the process improvement of logistics. However, the state bank will have to divert considerable resources for the development of a non-core asset. "
This is VTB's ambition, the head of the bank active in the M & A market is sure: "Magnet" is a big company, you can try to develop it further, but you can also resell it more some time later. " "The company is very promising, but over the past year has lost a lot in capitalization. We believe that you can return the value of the shares to a higher level. We also do not exclude the possibility of a merger, expansion and organic growth of the company are possible. We'll watch, "TOSS told Kostin. It remains an open question whether VTB will be the ultimate buyer, argues the analyst of Uralsib Konstantin Belov, or this package will be resold to a new buyer.
VTB is a strategic investor, says the representative of the bank. According to him, in this capacity, its main task is to increase the fundamental value of Magnit's business, and this should ensure an attractive return on invested capital for both current shareholders and potential new investors. To implement this task, VTB plans to attract international and local strategic partners, said a representative of VTB.
What to do VTB
"In Magnit, it is necessary to translate a certain reorientation from the entrepreneurial approach to a more modern, clearly motivated management team, to slightly change the organizational structure. We will pinpoint management," Solovyov said.
Apparently, the retailer needs to change its strategic management and, probably, VTB expects to be able to find ways to develop this asset, BCS analyst Olga Naydenova said. Perhaps there will be an attempt to do something more on the basis of the existing Magnet, in order to resell it in the future with profit, says Fitch analyst Alexander Danilov, but whether or not it works out is a big question. After all, the market is very competitive. State Bank also used to buy non-banking assets. But from many investments VTB eventually came out. VTB may have difficulty in selling the asset in a few years, believes Suverov. Foreigners may not be interested in the asset because of potential political risks, and it will not be easy to find investors on the Russian market, he believes. Although the retailer may be interested in industrial and financial groups, such as Alfa Group. Most likely, VTB will want to sell its market share, he is sure. Talks about the sale of shares are premature, said a representative of VTB.
First of all, Magnit needs to decide how to develop further: will it be the growth of stores and the purchase of other players, or growth will be less rapid with an eye on the profitability of sales right now, Zuprov comments. Also, Magnit needs to set very specific goals and go to them, he continues: for example, X5's goal is to occupy a certain market share and increase the number of stores.