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Russian billionaire seeks to buy Spanish supermarket group Dia

Russian billionaire seeks to buy Spanish supermarket group Dia

Russian billionaire Mikhail Fridman has offered to buy Dia Group in a deal that gives the struggling Spanish supermarket chain an equity value of €417m, a deep discount from its €2.7bn valuation at the end of 2017.

Mr Fridman’s holding company, LetterOne, which owns 29 per cent of Dia through its L1 Retail fund, has offered to purchase the rest of the company for €0.67 a share, a premium of 56 per cent to Monday’s closing price. LetterOne bought much of its existing stake early last year, when shares were trading at about €4.

Shares in Dia surged more than 70 per cent after news of the bid on Tuesday.

LetterOne first bought into Dia in mid-2017 and the chain’s prospects began to dim not long after sales fell. Last year, chairwoman Ana María Llopis resigned, the chief executive was replaced twice, its 2017 earnings had to be restated, its dividend was slashed and its debt downgraded to junk. It had lost more than 90 per cent of its market value in the past year.

LetterOne and Dia had clashed over a turnround plan and in December, LetterOne’s three board representatives resigned in protest. Stephan DuCharme, who was one of them, wrote to the company saying its strategy did “not adequately reflect the scale of transformation required and the execution risks associated with it”.

Dia subsequently announced a refinancing deal, which offered it access to €900m in short-term financing and working capital, but was dependent on a €600m rights issue in the first quarter.

Mr DuCharme, L1 Retail’s managing partner, said he wanted to avoid the “highly dilutive” share offer — which would force L1 to spend roughly €180m to maintain its stake.

Instead, L1 Retail said, it would inject €500m into the company if the bid were successful, with L1 putting up a share equal to its post-buyout ownership stake and underwriting the rest. This commitment, however, is dependent on Dia’s lenders agreeing to a long-term debt restructuring.

Dia had €1.4bn in net debt at the end of September, including €900m in bonds.

“If we don’t reach a satisfactory agreement with the banks,” said Mr DuCharme, “our commitment to the capital increase falls away”.

Dia and its franchisees have a huge network of more than 7,400 stores across Spain, Portugal, Brazil and Argentina. But Dia, Spain’s third-largest grocery chain, has seen its market share eroded as local group Mercadona and German discount chain Lidl have responded more quickly to changing consumer preferences.

“Dia never responded to customer trends. At the end of the day that’s what it’s all about,” said Mr DuCharme. “Dia’s sales per square metre are a third or half of some of its competitors. That’s where the opportunity was missed.”

Mr Fridman has built his X5 Retail Group into Russia’s biggest food retailer with more than 13,000 stores. Mr DuCharme led a period of fast growth at X5 as chief executive, and is now chairman. More recently, L1 Retail bought UK health food chain Holland & Barrett for £1.8bn in 2017.