March 6, 2019 / 11:42 AM / 5 months ago

Russian tycoon's fund sees shareholder support for DIA bid plan

MADRID (Reuters) - Russian tycoon Mikhail Fridman’s LetterOne (L1) investment fund has received strong signals of support for its plan to take over struggling Spanish supermarket group DIA, L1’s managing partner said on Wednesday.

FILE PHOTO: People walk outside a DIA supermarket in central Madrid February 23, 2015. REUTERS/Juan Medina

L1, DIA’s biggest shareholder, and DIA’s board, have been sniping at each other over rival plans to raise capital as part of efforts to overhaul the retail group which has lost market share to rivals.

Fridman’s L1 made its takeover bid last month to counter a planned share issue worth 600 million euros agreed by DIA’s management in December which would have forced L1 to spend almost 200 million euros just to maintain its existing stake of around 29 percent.

Stephan DuCharme, L1 managing partner who briefly acted as DIA’s interim chairman last year, said he had held meetings with investors in Spain and Britain to discuss L1’s bid for the 70 percent of the company it does not already own.

“We are getting strong signals of support,” Ducharme told reporters. “I have had a number of emails after my shareholder meetings, coming back to me saying: Thank you, I get it, I’m going to support you at the shareholder meeting.”

DIA shareholders will meet on March 20 to choose between L1’s proposal and the board’s, which includes a rights issue and a capital reduction.

DIA’s board said at the weekend that L1’s plan would not solve the retailer’s short term challenges, which prompted L1 to respond that the board was misleading investors.

L1’s bid is conditional on the rights issue and capital reduction being shelved by DIA, whose stock fell 90 percent in 2018, battered by three profit warnings and concerns over its debt levels.

DIA’s discount model flourished during Spain’s deep recession, but German discounter Lidl and domestic rival Mercadona have since invested heavily in their stores and attracted more customers whose spending power has been supported by economic recovery.

Turning the company around will take at least four to five years under L1’s calculations.

“There is probably a process of 12-18 months to make sure you have got it right,” Ducharme said. “Once it works then you do massive capex into store refurbishments.”

DIA shares are currently trading some 18 percent below L1’s 0.67 euros offer price.

L1, whose investments range from oil and gas to technology, entered into the retail market in 2017 with the 1.77 billion pound acquisition of British health food chain Holland & Barrett.

Reporting by Isla Binnie and Andres Gonzalez. Editing by Jane Merriman

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