Magnit - Conference Call on Potential SIA Group Acquisition
Magnit held a long conference call yesterday dedicated to its potential acquisition of SIA Group. The prospects of the pharmaceutical market and Magnit's advantage in the pharmacy format were highlighted during the call. However, we note that SIA's distribution capacity well surpasses Magnit's long-term needs. Hence, Magnit's sudden urge to consider the acquisition when it has yet to deliver an operational turnover in its food retail chain is puzzling to us. According to the management, the deal should be cheaper than organic expansion (which the management estimates would cost R23 bln). Based on Interfax's financials for SIA, the deal would most likely be margin- and ROIC-dilutive.Magnit is a holding company. Through its subsidiaries, Co. operates in the retail and distribution of consumer goods under the Magnit name. Co.'s retail operations are operated through convenience stores, cosmetic stores, hypermarkets and other. Most of its stores are located in the Southern, Central and Volga regions. Co. also operates stores in the North-Western, North-Caucasian, Urals and Siberian regions. As of Dec. 31 2014, Co.'s stores chain consisted of 9,711 stores: 8,344 convenience stores, 190 hypermarkets, 97 Magnit Family stores and 1,080 drogerie stores in 2,108 cities and towns throughout the Russian Federation.
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