Networks "36.6" and A5 may merge

The largest deal is being prepared on the Russian pharmacy market. As Kommersant learned, the shareholders of the 36.6 and A5 networks, which are among the top five, are agreeing to merge the business. To do this, “36.6” can conduct an additional issue in the amount of up to $300 million, which will pay for the purchase of A5. The new company will control 25% of the Moscow market.

A source close to one of the co-owners of a large pharmacy chain told Kommersant that 36.6 and A5 are negotiating a merger, and was confirmed by A5 shareholder Sergei Solodov. Negotiations are at an early stage, but an agreement of intent can be signed in the near future, Mr. Solodov clarified. In the event of a deal, he adds, 36.6 intends to conduct an additional issue to buy out A5. The head and shareholder of “36.6” Artem Bektemirov told Kommersant that he could not give any comments on this issue. The Federal Antimonopoly Service (FAS) has not yet received a corresponding request, says a FAS representative.

The merger of pharmacy chains has been discussed since the end of last year, says Kommersant's interlocutor familiar with the details of the negotiations. But until the end of January 2013, A5 was bound by an agreement with the grocery retailer X5 Retail Group (Pyaterochka, Perekrestok and Karusel chains), which had an option to acquire up to 100% of the pharmacy chain until the end of January 2013. But at the end of January it became clear that X5 Retail Group would not exercise the option, says Mr. Solodov. In the near future, the companies will sign a new, “softer” agreement. It assumes that in the event of the sale of A5, X5 Retail Group will participate in the transaction. X5 Retail Group declined to comment on this topic.

Company 2679656E3B was created in 2006, among the shareholders are the ex-general director of the Kopeyka chain Sergei Solodov, Roman Buzdalin, 8.45% of the shares of the pharmacy company belong to X5 Retail Group. A5 now manages more than 1.3 thousand pharmacies (brands A5, Social Pharmacy, Mosoblpharmacia, online pharmacy Piluli.ru). Revenue in 2012 - 12.5 billion rubles. (about $416 million), according to the network itself. Other financial indicators are not disclosed.

The largest shareholders of "36.6" are 36.6 Investments Limited (controlled in equal shares by Artem Bektemirov and Sergey Krivosheev), which has 40.01% of the company's shares and the HI Capital investment fund - 22.59%, free float - 37%. The pharmacy chain also controls the drug manufacturer Veropharm. As of September 30, 2012, the network operated 892 pharmacies, nine optical stores and 24 optical departments located inside pharmacies. For nine months of 2012, the company's sales amounted to almost 15.6 billion rubles. (almost $520 million), the group’s net loss was 650 million rubles. (almost $22 million), net debt - 8.5 billion rubles. ($282 million). The company's capitalization yesterday was 3.4 billion rubles.

Sergei Solodov explains the desire to unite companies with a number of advantages, for example, this will allow companies to reach a qualitatively different level of development - a large network allows them to gain a number of competitive advantages due to large discounts from suppliers, longer deferred payments, Mr. Solodov lists. According to his estimates, the new player will immediately occupy a 25% share of the Moscow market.

According to Pharmexpert for January-November 2012, the volume of the retail commercial market of medicines in Russia amounted to $16.3 billion; according to forecasts, for the whole year the figure will exceed $18 billion.

Pharmexpert Research and Consulting Director Nikolay Bespalov estimates A5’s business in the range of $250-300 million. “If the deal is paid for with 36.6 shares, it will not require additional financing and, as a result, the debt burden of the merged company should not worsen, In this case, the merger of networks will practically double the business and make the new player a market leader with a noticeable lead over its closest competitor, Rigla, and this could be the key to improving the financial position of 36.6,” says Raiffeisenbank analyst Natalya Kolupaeva. As a result of the consolidation of networks, an absolute leader will emerge that will surpass other companies both in market share and in the number of pharmacies, agrees Nikolai Bespalov, director of research and consulting at Pharmexpert.

“The concentration of the pharmacy market will increase over time, so any mergers and acquisitions will be in line with this trend,” says the head of the main competitor of pharmacy chains, Rigla, Alexander Filippov. But Rigla itself, he clarifies, will adhere to the strategy of organic expansion of the network.

Evgenia Pertseva

Pharmacies have been prescribed a merger