Gosbank turned into a prodmag

Why did VTB buy a Magnit network from Sergey Galitsky

The founder of the Magnit retail stores, Sergei Galitsky, sold 29.1% of the company's shares to his longtime partner - VTB Bank for 138 billion rubles. The entrepreneur will leave the position of general director of the company, retaining 3% of the Magnit’s shares as a minority. The familiarity of the event is not only on the scale of the transaction, but also that the Magnit’s largest shareholder of VTB will now be the right to make key strategic decisions.

One of the most successful private companies in Russia, working in the field of retail trade, is crossing the wing of the state - a market in which the share of state -owned companies until recently sought to zero.

Galitsky, the permanent head of the Magnit since the opening of the first store in Krasnodar 20 years ago, was seriously worried about breaking up with his brainchild. During the announcement of the deal at the investment forum in Sochi, the businessman could not restrain emotions and interrupted his performance to drink water. “Time goes on, and nothing forever. I should not stand across this process, ”the entrepreneur said, explaining the need to leave the request from investors.

Galitsky’s explanation looks quite believable: now Magnit is going through the best of times, and the entrepreneur himself a few years ago hinted at the desire to move away. Galitsky began to give up positions in 2016, having passed the retail group Retail X5 in the first place in terms of revenue, which owns the “Crossroads” and “Pyaterochka”.

The financial indicators of Magnit were deteriorated under the influence of investments in updating stores and launching their own production, which were carried out against the background of the fall of the purchasing power of the population. In addition, a model of a nondescript discounter, “in Socialist” selling pure calories and focused on rural areas, ceased to satisfy the requirements of modern retail.

Since then, the gap has only increased, and according to the results of the recent bidding on the London Exchange, X5 overtook Magnit and on capitalization ($ 10.05 billion against $ 9.91 billion). Since September, the company's shares have more than doubled, and this year Magnit was going to refuse to pay dividends for the first time in 7 years.

There are several interpretations of the motives for the acquisition of VTB of a non -core asset for 140 billion rubles. Firstly, this can be a portfolio investment: the State Bank buys Magnit in a situation of resold the shares of the company, and even with a discount to the market price, so that at the first opportunity it is the first opportunity to sell the asset (VTB in a similar way is previously included in the capital of another retailer-“tapes”).

The second explanation, so far not the most probable, ascribes to the leadership of VTB political goals. The Magnit allegedly got the State Bank as a cargo of social responsibility - two -thirds of the network are in small Russian cities and villages, so retailer’s financial difficulties must be overcome at all costs. This also follows the possibility of political manipulation of food prices and other charms of the model of the Soviet Universum.

Finally, the third option suggests that VTB investments are strategic in nature and are aimed at developing business. On the eve of the announcement of the transaction, the State Bank announced plans to use the logistics infrastructure of the Russian Post as part of a commercial partnership with Magnit. The couriers of the "mail" will deliver products from the "Magnit" to the house, and the postal parcels can be taken in retail stores. Other services and business processes of the State Bank, Mail and retailer will also be integrated into a single platform. Among other things, this scenario means that VTB will be able to apply its rich experience in the field of mergers and acquisitions, transferring Magnit to a more aggressive business model in order to squeeze competitors from the X5 group.

Nevertheless, the news about the change of Magnit’s owners did not please the market: according to the results of trading on Friday, the company's shares on the Moscow Exchange fell by 8%. On the one hand, such a reaction is understandable.

The Magnit market reputation was personally on the personality of Galitsky, and VTB, unfortunately, is far from the model of effective business.

Over the past 10 years, while the retailer has grown rapidly in price, the capitalization of the State Bank has decreased by 2.5 times. In addition, investors are dissatisfied with the parameters of the transaction, which are specially calculated in such a way that the State Bank does not have to offer the minority the redemption of their shares.

On the other hand, VTB will at least solve the current financial problems of Magnit and, judging by the standard practice of state banks, will do this regardless of the real profitability of the business. According to Kostin, it is planned to implement the Magnit package in the market in 5-6 years, but by this time the state -owned economy could overcome many new borders, including the creation of a federal network of state supermarkets.