TPG pays up to end ugly Russian conflict
-- The author is a Reuters Breakingviews columnist. The opinions -- The author is a Reuters Breakingviews columnist. The opinions expressed are his own --
By Jason Bush
MOSCOW, June 27 (Reuters Breakingviews)- One of Russia’s most embarrassing corporate disputes may be on the brink of resolution. Along with its Russian partner, VTB bank, U.S. private equity group Texas Pacific Group (TPG) looks poised to take control of the Russian supermarket chain Lenta, buying most of the shares belonging to U.S. investor August Meyer. Although the end of the conflict will be a relief for TPG, the ugly dispute has damaged its reputation -- and confirmed Russia’s.
The conflict burst into prominence last year, when a Lenta shareholder meeting descended into fisticuffs between supporters of two rival general directors –- one backed by Meyer, a 40.6 percent shareholder in the company, the other by TPG and VTB, which together own 30.8 percent. TPG and VTB prevailed, but their strong-arm tactics provoked outrage from Meyer, resulting in a barrage of legal challenges both in Russia and abroad.
Although such vicious corporate conflicts aren’t unusual in Russia, the fact that the protagonists were both U.S. investors made this one especially damaging. The message seemed to be that foreigners who invest in Russian companies end up willy-nilly playing by Russian rules.
Little wonder TPG is anxious for peace. Although details of the transaction have yet to be disclosed, Meyer has said that it is “more than fully priced”. In January, Russian investment bank Renaissance Capital valued Lenta at $2.85 billion, not taking into account $316 million in debt, implying that Meyer can look forward to at least $750 million if he sells three-quarters of his stake.
That compares with the $110 million that TPG and VTB paid in 2009 to acquire their existing stake in Lenta. Nevertheless, settling the dispute is clearly worth the higher price. It increases the likelihood that a strategic investor will buy them out in future. At a mooted valuation for Lenta of around $2.5 billion, they could still look forward to a return of around 75 percent on their combined investments.
TPG probably feels that the risks of getting involved in such an ugly conflict were worth it. But the end of this particular dispute may not be especially reassuring for other investors in Russia. If it can happen once, it can happen again.
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-- U.S. private equity firm TPG and Russian bank VTB (VTBR.MM) will take control of retailer Lenta after agreeing to buy shares from its main owner August Meyer, Meyer told Reuters on Friday. He said a deal had yet to be signed but is expected within days.
-- Meyer, who currently owns 40.6 percent of Lenta, said that -- Meyer, who currently owns 40.6 percent of Lenta, said that he was likely to keep a 10 percent stake. TPG and VTB presently own 30.8 percent of Lenta. A price has yet to be disclosed. In January, Renaissance Capital valued Lenta at $2.85 billion, not taking into account $316 million in debt, Russian media reported.
-- Lenta has been the subject of a protracted shareholder -- Lenta has been the subject of a protracted shareholder dispute between the TPG/VTB alliance and Meyer that has lasted for at least a year. The battle, which centred on who should be Chief Executive of the company, has been seen as an illustration of the risks associated with investing in Russian companies.
-- For previous columns by the author, Reuters customers can -- For previous columns by the author, Reuters customers can click on [BUSH/]
(Editing by Pierre Briançon and David Evans)
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