OREANDA-NEWS. On 26 June 2008 X5 Retail Group N.V., Russia's largest food retailer in terms of sales, announced that it has signed an agreement with the shareholders of Formata Holding B.V., the owner of the Karusel hypermarket chain, for the acquisition of the entire issued share capital in Formata  and related intellectual property for a total amount of approximately USD 940 million, including an in-kind payment of 6,986,020 X5 GDRs at a provisional value of USD 33.10 per GDR.  The acquisition of Formata is expected to complete before 28 June 2008.

X5 and the shareholders of Formata have today signed a share purchase agreement that provides for the transfer of the entire issued share capital in Formata before 28 June 2008.  The purchase price payable by X5 was calculated in accordance with a formula set out in the Call Option Agreement (please see X5 press-release dated 16 January 2008, attached hereto for your convenience) and amounts to approximately USD 925 million, which includes:

• the value of Karusel's operational business as at 31 December 2007 in the amount of USD 914 million;
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• its land and other real estate in the course of construction (where business was not carried out as at 31 December 2007) in the amount of USD 148 million, as determined by an internationally recognized independent real estate appraiser;
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• less its net debt as at 31 December 2007 in the amount of USD 137 million.
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The land and other real estate under construction include a hypermarket that was opened in the first half of 2008, three hypermarkets under construction, and eight land plots potentially suitable for hypermarket construction.

In accordance with the terms of the Call Option Agreement, X5 has elected to settle 25% of the purchase price with newly issued X5 shares (which are expected to be converted into GDR form), at a provisional value of USD 33.10 per GDR. For this purpose, in line with authorization by shareholders at the EGM held on 21 April 2008, the Supervisory Board has approved the issuance of 1,746,505 new shares (equivalent to 6,986,020 GDRs) and the exclusion of pre-emptive rights with respect to this issuance.  The provisional GDR price is calculated in accordance with the Call Option Agreement, based on the average weighted price for 30 days preceding the exercise date (2 January 2008). The final GDR price is subject to confirmation by London Stock Exchange within 30 days after the signing. The balance of the purchase price will be paid in cash.

X5 has also entered into an additional agreement with Andrei Rogachev, one of the beneficial owners of Formata, and a company controlled by him to acquire certain intellectual property for use in Karusel’s business (including Karusel’s business platform, brands, patents, licenses, IT and other relevant documentation) for a consideration of USD 15 million payable after the completion of the transaction.

At signing, the Grantors have disclosed that Formata has entered into real estate development contracts with affiliates of Donson B.V. (“Donson”) (which is associated with the Grantors) to build eight additional hypermarkets. In connection with these contracts, Formata has made some significant prepayments to Donson. As a part of their contractual obligations, the Grantors warranted that there are no other material contracts or obligations of Formata in favour of persons connected with  the Grantors. The Grantors have also warranted that total gross debt outstanding at closing will not exceed RUR 10.3 billion (approx. USD 436 million). The Company has been aware of certain of these matters in the course of the earlier negotiations (as it became disclosed in the Karusel’s financial statements for 2007). The Company has indicated to the Grantors its position that such contracts and commitments do not accord with Grantors' obligations under the Call Option Agreement. The Company is considering how best to resolve this outstanding issue.

Goldman Sachs is acting as financial advisor, Lovells – as legal advisor to X5 Retail Group on the acquisition of Formata.