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. Last Updated: 07/27/2016

Sedmoi Soars on TPG Stake Report

VedomostiA Sedmoi Kontinent store in Moscow. The retailer's shares rose 7.3 percent on the RTS and 5.3 percent on MICEX.
Shares of Sedmoi Kontinent, the country's sixth-biggest food retailer, rose the most in a year after Kommersant reported Thursday that buyout firm TPG might acquire a stake in the company for as much as $1.2 billion.

TPG is in talks with Sedmoi Kontinent shareholders Vladimir Gruzdev and Alexander Zanadvorov on a transaction that would give the private-equity firm a stake of about 37 percent and half the retailer's real estate assets, the newspaper said, citing an unidentified executive at the company.

Sedmoi Kontinent generated $958 million in sales for 2006 and had 118 supermarkets and six superstores at the end of March.

"The opportunities for growth are colossal," Natasha Zagvozdina, an analyst at Renaissance Capital, said of Russia's food retailing industry. "Sedmoi Kontinent is a good company with undervalued assets, so why not buy them. Consolidation is only starting up" in the Russian food industry, she said.

Leonid Pirogov, a spokesman for Sedmoi Kontinent, declined to comment on the Kommersant report when contacted Thursday. Stephen Peel, the partner at TPG who runs its Russian business, was not immediately available for comment.

The purchase would be the biggest investment by a U.S. buyout firm in Russia and TPG's first since the former Texas Pacific Group set up an office in Moscow at the end of last year.

Sedmoi Kontinent's shares gained $1.88, or 7.3 percent, to $27.52 on the RTS, the steepest gain since July 4 of last year. That gave the company a market value of $2.1 billion. On the MICEX exchange, the stock was up 35.01 rubles, or 5.3 percent, to 702.02 rubles.

TPG is in talks to buy half of Gruzdev and Zanadvorov's holding company, 7K invest-holding, the Kommersant report said. 7K owns 75 percent of Sedmoi Kontinent and 99.5 percent of the retailer's property unit, Mcapital.

The buyout firm would spend $5 billion to $7 billion over the next nine years developing Sedmoi Kontinent if the transaction takes place, Kommersant said.

The agreement may be reached Sept. 3, the newspaper reported.

According to Renaissance Capital, TPG is seeking to acquire assets worth $1.3 billion. 7K invest-holding's real estate assets include 65 Sedmoi Kontinent stores, the bank said in a note.

TPG would "ensure that Sedmoi Kontinent's management changes, or is strengthened by new hires," Renaissance Capital's Zagvozdina said in the report. The company "has been lagging behind peers and delivering relatively slower growth."