April 11, 2019 / 5:20 PM / 13 days ago

Russia's Sberbank in talks to buy retailer O'Key: sources

MOSCOW (Reuters) - Russia’s largest lender Sberbank is in talks to buy mid-sized food retailer O’Key, six industry sources told Reuters.

FILE PHOTO: Logos of Sberbank are seen on automated teller machines in Moscow, Russia, June 10, 2016. REUTERS/Maxim Shemetov/File Photo

The talks follow a decline in the shares of many Russian food retailers over the past year and expectations of sector consolidation because of tougher regulation and a decline in Russian consumers’ disposable incomes.

If Sberbank agrees to buy O’Key, it could then sell it to another investor, said one of the industry sources and a source close to Sberbank management. They did not disclose the name of the potential investor.

Sberbank does not plan to acquire O’Key “for its own interest”, the bank said on Thursday, declining to elaborate.

O’Key declined to comment.

The retailer’s global depository receipts (GDRs) rose in London after the Reuters story was published and were up 11 percent by 1608 GMT.

Russian steel magnate Alexey Mordashov this month said he would buy a significant stake in O’Key’s larger rival Lenta. Magnit, another leading player in the sector and part-owned by Russia’s second largest lender, VTB, has also expressed its interest in Lenta.

O’Key had a market value of about $500 million at Wednesday’s market close, down 26 percent since the end of 2017. None of Reuters’ sources disclosed a price for the potential deal.

In August last year O’Key signed a non-revolving loan facility agreement with Sberbank for 12 billion roubles ($186 million) to refinance debt.

One industry source said the talks had slowed of late, adding that the purchase, if agreed, will be for cash rather than a debt-for-equity deal. The source also said that O’Key’s discount chain Da!, which means Yes! in Russian, could be left out of the deal.

O’Key launched Da! in 2015 while taking a cautious stance on expanding hypermarkets, its core business. In 2017 it sold its supermarkets to market leader X5.

The company has held talks with various parties in recent years over a sale of its hypermarkets.

It currently has three major shareholders, businessmen Dmitry Korzhev, Dmitry Troitskiy and Boris Volchek, the company said in a recent presentation. Reuters was unable to locate them or their representatives.

Reporting by Olga Popova, Tatiana Voronova, Polina Devitt, Darya Korsunskaya and Maria Kiselyova; Writing by Polina Devitt; Editing by Keith Weir, Jane Merriman and David Goodman

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