OREANDA-NEWS. October 29, 2009. The Federal Antimonopoly Service (FAS) approved X5’s application to acquire the Paterson supermarket chain without additional conditions. X5 filed the application in October to acquire Paterson, a Russian supermarket chain with almost 80 stores across the country. Without FAS approval, the acquisition of Paterson would have been problematic as X5 has close to a dominant position in the St. Petersburg food retail market (where Paterson has 11 stores), reported the press-centre of OTKRITIE Financial Corporation.

View: The news is positive, as it greatly enhances the likelihood of X5’s acquisition of the Paterson chain. That said, there is still a lack of detailed information on the potential transaction (i.e. possible valuation, multiples and the financials of the acquisition target). We think that the transaction will significantly strengthen X5’s supermarket segment (adding 80 stores or 38% to X5’s 211 supermarkets) through greater market exposure and possible administrative and logistics synergies. We estimate Paterson’s revenues to be US650-750m and its EBITDA at US 35-45m. Acquisition will add c6% to X5’s consolidated EBITDA, without considering possible synergies which we estimate to be in the range of US 15-20m per year.

Valuation: X5 trades on a 2010 EV/EBITDA of 8.6x, which is a 14% discount to EM peers.

Action: We reiterate our positive view on X5 stock as the best exposure to the food retail segment in Russia.