For this, the FAS will allow the company to acquire a competitor – the Dixy company
On July 15, the Federal Antimonopoly Service (FAS) announced that it had approved the purchase of the Dixy retail chain by the Magnit retailer. To coordinate the transaction, the service issued a number of instructions to the company. In particular, the merger is possible only in those municipalities where Magnit’s share does not exceed 25%. Moreover, to prevent the creation of a dominant position in 22 municipalities of 10 regions of Russia, the market share of the merged company should be reduced within a year to 35%. We are talking about the Vladimir, Vologda, Leningrad, Murmansk, Novgorod, Smolensk, Tver, Tula, Yaroslavl regions and the Republic of Karelia).
The company also pledged to keep zero trade margins for milk, bread and chicken meat throughout the year, the service said. Later, the company itself clarified that the mark-up would be zeroed not for all products of these categories, but for one selected product of the “first price” in each of them. This will affect both Magnit stores and Dixy stores, a representative of the retailer added. The company believes that buyers will benefit from the affordable offering, he added.
Magnit was founded by businessman Sergey Galitsky in 2000. Now the largest shareholders of the chain are VTB Bank (25.8%) and Marathon Group of Alexander Vinokurov and Sergey Zakharov (6.6%), according to the report for the first quarter of 2021 63% of the company’s shares in free float. Revenue of “Magnit” at the end of last year amounted to 1.51 trillion rubles. As of March 31, 2021, the network consisted of 21,900 retail outlets: 15,098 convenience stores, 471 Magnit family supermarkets and 6331 drogerie stores.
Dixy Group belongs to the Mercury Retail Group of Igor Kesaev, Sergey Katsiev and Sergey Studennikov. The retailer operates more than 2,600 Dixy and Megamart stores, whose total revenue last year amounted to less than RUB 300 billion.
The fact that Magnit wants to buy the Dixy retailer (including Megamart stores) from the Mercury Retail Group became known in May. The preliminary assessment of Dixy’s business was 92.4 billion rubles, the parties reported at the time.
The agreement to zero the margin for Magnit looks innovative, says Yuri Aksenov, partner at the law firm Orchards.
He recalls that, according to the law on trade, the prices for goods are determined by the chains independently. The only exception is the situation when the government, by its decree, sets maximum permissible retail prices for a period not exceeding 90 days. Apparently, therefore, in the FAS statement, the zeroing of the margin is presented as voluntary, the expert continues. In general, this approach is consistent with the course of containing consumer prices through the use of certain “long-term market mechanisms”, the expert argues.
Last December, President Vladimir Putin demanded that the government take action in connection with the outstripping rise in prices for basic foodstuffs. After that, agreements were concluded to curb prices for sugar and sunflower oil, as well as grain export duties and other measures were introduced.
In the opinion of Mikhail Burmistrov, general director of Infoline-Analytics, the company probably used the zeroing of the markup as an additional argument in the dialogue with the Federal Antimonopoly Service. Recently, price control, especially for socially important products, has been an important topic for officials, it is not surprising that such proposals have appeared. Burmistrov believes that this measure will not be sensitive for Magnit’s business, since we are talking about individual goods in categories for which there is usually a small margin.
This deal may become the largest in Russian retail in the entire history of the market, both in value and in the number of points, adds Burmistrov. The share of “Magnit” in the food retail market at the end of 2020 was 8.7%, the retail business of “Dixie” and “Megamart” – 1.9%, says Burmistrov. After the deal, Magnit’s stake will grow to 10.6%. True, this still will not allow us to catch up with the X5 Group, which at the end of 2020 occupied 12.6% of the market.
FAS uses price prescriptions for very large transactions, says NSP partner Ilya Rachkov. For example, in 2007, when agreeing on the merger of Rusal, Sual and Glencore, the service demanded that the merged company form a price for the domestic market using the formula “cost of aluminum on the London Metal Exchange (LME) plus 4–5%”. Several years ago, when the Federal Freight Company (a subsidiary of Russian Railways) received 100% of the assets of UVZ-Logistics for use, the Federal Antimonopoly Service demanded to justify the increase in prices for services, Aksenov recalls.
Sometimes retailers keep prices down on their own. Last year, X5, on its own initiative, twice zeroed the markup on the list of socially significant goods, says a company spokesman. For example, in December, this list included pasta, bread, stew, black tea, potatoes, cereal and UHT milk. The initiative was aimed at supporting disadvantaged groups of buyers, he explains.
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