Friday 20 September 2019

Russian oligarch sells €2bn stake in empire

Russian oligarch Sergey Galitskiy will quit as chief executive of Magnit. Stock image
Russian oligarch Sergey Galitskiy will quit as chief executive of Magnit. Stock image

Ilya Khrennikov

Russian oligarch Sergey Galitskiy is walking away from his massive grocery empire.

He will quit as chief executive of Magnit after selling 138bn rubles (€2bn) of shares - 29pc of the company - to the state-controlled VTB Group.

Though he had been cutting his stake in the chain in small increments in recent years, the market was surprised to see him sell almost entirely. After Friday's deal, Galitskiy owns about 3pc.

In 1998, Galitskiy opened a small grocery in his hometown of Krasnodar, south of Moscow. Over the next two decades he expanded that modest operation into an empire with around €16bn in sales and 16,000 stores across Russia, amassing a fortune valued at some €4bn in the process. The disposal comes after Magnit had struggled to manage its rapid expansion and fend off competitors, especially X5 Retail Group, controlled by rival billionaire Mikhail Fridman.

With its sales growth slowing, Magnit in 2016 ceded the title of Russia's largest retailer to X5, and its shares have fallen by more than half in the past 12 months.

Magnit dropped as much as 7pc in Moscow trading on Friday, to the lowest since 2012.

Galitskiy said he decided to sell because his views on running Magnit clashed with those of other shareholders, as the market demanded fast growth and he preferred to focus on profitability, Russian news agency Interfax reported. "It was a difficult decision since I founded this company," he said at a signing ceremony in Sochi, clearly emotional, in a broadcast shown on RBC Television. "But nothing is forever. I shouldn't oppose this process. If investors want changes, they should get them."

The haste with which the deal was put together, the relatively low price, and the fact that the buyer was a state-controlled bank indicate that Galitskiy made "an emotional rather than a rational decision", said Alexey Krivoshapko, director at Prosperity Capital who helps manage €3.4bn in assets, including Magnit shares.

But there have been underlying problems that must be addressed, Krivoshapko said, and the company might well benefit from new leadership.

"Magnit has been underperforming for the last two years," Krivoshapko said. "Management has been missing sales targets and pushing an unrealistic plan to improve margins by producing its own food."

Magnit's customer base in the regions was hard hit by soaring inflation and a two-year economic recession. Consumer demand is now slowly recovering, supported by lower inflation and a strengthening of the ruble.

With investor concern growing over high-profile takeovers of oil and banking assets by state-controlled entities in the past 18 months, VTB was quick to defend the acquisition as just another investment.

VTB senior executive Yuri Soloviev said the purchase of Magnit was "purely an investment decision".

Speaking to reporters, Soloviev pointed to his bank's 2012 purchase of 47pc of fast-food chain Burger King's Russian franchise operation as an example of its experience in the retail and consumer sector.



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