X5, controlled by billionaire Mikhail Fridman's Alfa Group, said it had sent an irrevocable option notice to the shareholders of Formata Holding, which owns the Karusel chain.
The purchase of a 100 percent stake in Formata is subject to due diligence as well as regulatory approvals. X5 said it had selected Goldman Sachs as its financial adviser on the acquisition.
"The potential purchase of Karusel would give X5 an immediate, significant exposure to the hypermarket segment, which has huge growth potential in the Russian retail market," said Andrei Gusev, X5's director for mergers and acquisitions.
"It will underpin X5's position as a leader in all three retail formats that we operate and further strengthen our market positions in the northwestern region of Russia," he said in an e-mail.
The London-listed X5, which has a market value of $6.4 billion, was created in May 2006 through a merger between discounter Pyatyorochka and supermarket chain Perekryostok.
The company had 749 stores as of September, including 256 discounters in Moscow, 235 in St. Petersburg and 83 in various regions. In addition, the company operates 163 Perekryostok stores in central Russia and Ukraine, including 101 stores in Moscow, and 13 hypermarkets.
As part of the merger agreement, X5 has a call option to buy Karusel from Jan. 1.
Karusel is co-owned by businessmen Andrei Rogachyov and Alexander Gidra. Both also own a 21.2 percent stake in X5.
Karusel spokeswoman Irina Yatsenko declined to comment on the acquisition Wednesday.
Last year, X5 put off a planned secondary share offering that could have raised $1 billion in October or November to finance the deal.
The company said at the time that it had enough resources available to finance expansion plans approved by its supervisory board.
Analysts said, however, that X5 could not avoid making a secondary share placement if the acquisition of Karusel were to go ahead.
Viktoria Grankina, an analyst at Troika Dialog, said that if the results of due diligence prove satisfactory, as widely expected, the purchase of Karusel would mesh with X5's business strategy.
Since its inception in 2006, X5 has pursued a growth strategy based on aggressive mergers and acquisitions. In October, the company acquired smaller grocery chain Korzinka for $115 million, adding 22 stores in the Lipetsk region. Last month, it signed an agreement to acquire the Strana Gerkulesia, or The Land of Hercules, discounter chain for $65 million, including debt.
The addition of Karusel would allow X5 to stave off competition in Moscow and St. Petersburg, said Andrei Nikitin, who tracks retail at UralSib bank.
Nikitin said that without striking a deal to buy Karusel, X5 would have been forced to build its own chain of hypermarkets to stay ahead of the competition.
"The market may also negatively affect X5 shares if it had failed to exercise its options, because Karusel has been factored into the company's valuation by most analysts and the market," he said.
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