British Car Dealer to Buy Musa

MTMusa Motors cut a niche in the domestic market selling premium and luxury vehicles, including 13,281 last year.
Inchcape car dealership group, the world's largest automobile retailer, said Thursday that it would buy Russia's Musa Motors Group, paying up to $700 million in a move to strengthen its foothold in one of the world's fastest-growing car markets.

In a highly structured arrangement, Inchcape will pay $200 million up front for a stake of 75 percent plus one share in Musa Motors, the Britain-based company said in a statement Thursday.

The company will make a second payment of as much as $250 million, depending on Musa's performance, at the end of this year. It will then buy the remaining 25 percent minus one share at the end of 2010, with a maximum price tag of $250 million, again depending on company performance.

The deal is subject to approval from Russian regulatory agencies.

Inchcape group chief executive Andre Lacroix said the acquisition would enable his company to maximize economies of scale by leveraging strong local management and marketing capabilities.

"This is a significant step in the development of our operations in Russia, giving us the opportunity to operate a scale business in this fast growing market, with many of our key [original equipment manufacturer] brand partners," Lacroix said.

Lacroix said the company expected the combined revenues in Russia to reach around $2 billion in 2009.

Inchcape already has a significant presence in the domestic car market, which it entered in 2006 via a joint venture with the Independence Group, one of Moscow's leading independent car dealers.

Last year, the company acquired two dealerships in St. Petersburg, and in October it acquired a 75 percent stake in retail outlets for Audi and Peugeot in the city.

"The transaction, which is in line with our strategy of expansion in emerging markets, together with our existing businesses in St. Petersburg, provides us with a strong springboard for regional rollout in Russia," Lacroix said.

Musa Motors, one of the country's largest car retailers, cut a niche in the domestic auto market by selling premium class and luxury models, which are in high demand thanks to a burgeoning wealthy class.

The company, which has outlets in Moscow and St. Petersburg, started operation in 1992, selling new and used cars and providing after-sale services.

It currently operates 16 retail franchise outlets for premium brands, including BMW, Jaguar, Chrysler and Rolls-Royce.

The company posted $597.4 million in revenues last year on the sale of 13,281 passenger vehicles and reported selling 3,222 cars in the first quarter of this year, a 52.8 percent increase over the same period in 2007.

Musa Motors plans to open four new retail outlets in Moscow over the next three years as well as relocate four retail centers to larger new facilities, the company said Thursday in a statement.

The changes give Inchcape a total of 21 retail outlets in Moscow, including those acquired through a joint venture with the Independence Group to sell Toyota cars.

The country's car market, the largest in Central and Eastern Europe, is experiencing rapid growth, driven by increases in disposable income and better access to credit.

Stanislav Gorozhankin, an automotive analyst with Renaissance Capital, said this growth dynamic was particularly attractive to foreign dealers.

"While the European market is slowing down, or even stagnating in the first quarter sales slipped by 1.7 percent to 4.2 million the Russian passenger car market is experiencing outstanding growth," Gorozhankin said.

"We expect Russia to surpass Germany and become passenger car market No. 1 in Europe by unit volume in 2008," he said.

Even with the significant growth in the market since 2003, Gorozhankin said there was still a very low penetration rate of 188 cars per 1,000 people in the country. "In Poland, that rate is 330 cars per 1,000 people, and in West European countries, 500 to 600," he said.

Passenger car sales in the first quarter of 2008 increased by 44 percent to 600,000, while sales of new foreign brand automobiles rose by 54 percent to 450,000 cars, according to figures from Renaissance Capital.