Yukos Snaps Up Kopeika Shops

In the largest deal ever in Russia's retail food sector, No. 2 oil producer Yukos said Friday it had acquired a controlling stake in No. 4 Moscow supermarket chain Kopeika.

Neither side would provide the price or exact size of the stake, but Yukos, flush with cash and hungry to expand its own downstream operations, said it would invest $100 million this year alone to develop the Kopeika group of companies together with its own retail network of some 1,200 service stations.

"Our current gasoline station network meets European standards, but we believe we have to start building new stations -- shops that will offer clients a wide range of different services," Nikolai Bychkov, the head of Yukos' refining and sales division, told reporters. "For this we have acquired a controlling stake in the Kopeika chain of supermarkets."

In addition to expanding the supermarket chain, Yukos officials said they intend to use the experience of Kopeika's current management team in organizing Yukos' own modern retail sales chain.

"Our goal is to use these managers to develop our retail business," Bychkov said.

Kopeika officials declined to comment until Monday, when they said the deal would be finalized.

Kommersant, however, reported Friday that Yukos outbid oil rival Sibneft with a pledge to invest $400 million to $500 million in exchange for a 50.5 percent stake in a new holding company called Trading House Kopeika.

The holding will include Felma and Triger, the companies that operate Kopeika's 24 stores and own its trademarks, respectively, while Felma's top management collectively will keep 49.5 percent of the new company and retain their positions.

An unidentified Felma representative was quoted by the paper as saying that the plan was to build 400 to 500 new stores, many presumably part of Yukos filling stations, and that Yukos has already invested $90 million in the expansion.

"We are talking about figures our industry has never known before now," the executive was quoted as saying.

The first Kopeika discount store opened in Moscow in May 1998 and, despite the financial crisis that rocked the economy that August, it continued to post impressive numbers. It doubled its revenues in 2000 to $115 million, making it fourth in sales behind Perekryostok, Sedmoi Kontinent and Ramstore. According to Kopeika, some $30 million was invested in its retail business last year, most of it from Sobinbank.

Analysts said that considering the recent arrival of European retail giants Auchan and Metro Cash & Carry, which are expected to invest hundreds of millions of dollars between them, and the fierce competition brewing in the retail gasoline market, the timing and fit of Yukos and Kopeika was a good one.

"All Russian retailers are trying to expand their chains as quickly as possible under the pressure of international retail chains being on the way. Kopeika, having such a strategic investor as Yukos, now has ... security," said Sofia Ragulina, retail analyst at NIKoil.

Leonid Mirzoyan, analyst at Deutsche Bank, said Yukos' move to develop its mini-market and gas station business would give it a firm footing as the competition in the sector increases.

Top domestic producers LUKoil, Tyumen Oil Co., or TNK, Sibneft, Rosneft and Tatneft all have ambitious plans to expand their retail networks. And international giants ChevronTexaco (jointly with TNK), Royal Dutch/Shell and British Petroleum already have stations here.

Rodion Tolpushev, the president of consulting firm Sovremennye Roznichniye Tekhnologii, said Yukos hired his company a year and a half ago to analyze several variants for expanding its network and decided that acquiring an existing company was the best option.

He said after taking a close look at some 100 different retailers, Sovremennye Roznichniye Tekhnologi settled on Kopeika.

"Kopeika is technically a very good company with a highly professional management team," Tolpushev said.

One reason Tolpushev said his company decided against Alfa Group's Perekryostok, despite its leading position, was the "personality of the directors."

"For example, if you look at two different Perekryostok stores, you will see two absolutely different shops because of the very big influence of the director's personality. And there is a danger that this influence will effect the use of investments given for development," Tolpushev said.

Another rejected target was Sedmoi Kontinent, which was founded in 1994 for creating, Tolpushev said, "super high returns" and is now in the middle of a restructuring.

"To buy it today would require spending a year to overhaul management and only after that could you start pouring investment in," he said.

Both Perekryostok and Sedmoi Kontinent are currently looking for a strategic investor, he added.

"We need to institute a service-oriented culture at our stations," Yukos' Bychkov said last year.

"Our research shows that companies that are better at retail will come out winners."

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