March 20, 2019 / 2:13 PM / a month ago

Shareholder vote clears way for Fridman bid for Spain's DIA

MADRID (Reuters) - Shareholders in Spain’s DIA backed a rescue plan for the faltering supermarket chain on Wednesday in a vote which clears the way for Russian tycoon Mikhail Fridman’s investment fund to proceed with a takeover bid.

FILE PHOTO: The logo of Dia is pictured in Seville, southern Spain March 14, 2016. REUTERS/Marcelo del Pozo/File Photo

A familiar sight on Spanish high streets, many customers have turned their back on DIA’s no-frills model as the euro zone’s fourth-largest economy pulled out of recession.

To start a turnaround, Fridman’s LetterOne (L1), DIA’s biggest shareholder with a 29 percent stake, proposed raising 500 million euros (£431 million) in fresh capital if it could build up a majority stake.

The capital hike won over shareholders who rejected a rival proposal put forward by DIA’s board, satisfying L1, which had said it would withdraw its takeover offer if the board’s plan passed.

L1 Managing Partner Stephan DuCharme said the fund would now work quickly on securing regulatory approval for its voluntary tender offer, after which it would carry out the capital hike.

“Shareholders will have a choice to make: accept the L1 Retail VTO and sell their shares at the premium valuation of 0.67 euros per share or retain their shares and accept the risk of an uncertain future for the business,” DuCharme said.

DIA shares, which fell 90 percent in 2018, rose after the vote to show a 3.8 percent gain on the day, but remained at 0.63 euros. L1’s bid values DIA at just over 410 million euros.

The fund, owner of British healthfood retailer Holland & Barrett, has touted the sector know-how of its retail team and advisory board, which include former executives of German discounter Lidl, Russia’s X5 Retail Group and France’s Carrefour.

A TUMULTUOUS YEAR

The board’s plan had been part of a deal with creditors, struck in December after three profit warnings in 12 months, to raise capital by 600 million euros in return for a sorely-needed liquidity injection.

Faced with a hefty payout to maintain its stake, L1 launched its takeover bid.

Outpaced by home-grown rival Mercadona and Lidl, which have invested heavily in their stores, DIA posted deep losses in 2017 and 2018. With negative equity on its balance sheet, DIA must act fast to shore up its balance sheet.

“The last 12 months have been the most difficult and tumultuous period for the company since its creation,” Chief Executive Borja de la Cierva told shareholders.

DIA says it could improve core earnings as early as 2020 by focussing on its own-label goods, selling more fresh produce and offering personalised promotions in a plan which would also cut around 1,500 jobs.

To manage debt which had piled up to 1.45 billion euros at the end of 2018, DIA said on Tuesday its banks had agreed to extend existing loans if the board’s rights issue went ahead.

If L1 succeeds with its takeover, it would inherit the responsibility to reach agreement with lenders and figure out how to pay 300 million euros in bonds due to mature in July.

Under L1’s calculations, it will take at least four to five years to restore the business.

Editing by Jan Harvey and Keith Weir

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