MAGNIT - WikiLeaks



MAGNIT

History

"Tander" company is the main operational company of "Magnit" group that started its activity in 1994 as a supplier of perfumery, cosmetics and household chemical goods. By the end of 1996 "Tander" company has firmly ranked among the ten Russian largest distributors of perfumery, cosmetics and household chemical goods.

The development concept of «Tander» company as a grocery-distributor was formulated by April, 1997. By 2000 the company's management decided to concentrate on retail chain development and all operating stores have been transformed into discounter format. The chain was named "MAGNIT" and continued its quantitative and qualitative growth under this brand. In 2001 "MAGNIT" chain became the largest retail chain in Russia according to the number of stores. (Magnit is now Russia's second-largest supermarket chain, after Pyaterochka which merged with Perekrestok in May 2006 under the X5 Retail Group name.)

Magnit Today

Magnit is owned by the Tander group based in Krasnodar in southern Russia. Tander group was formed from a small company set up in Krasnodar in 1994, which initially specialized in wholesale trading of household chemicals and cosmetics. It entered the retail food market in 1997.

• Size & Sales: Magnit has 49 branches, more than 1893 stores in more than 600 locations. Currently several tens of stores are opening every month. The company has more than 44,300 employees. Magnit is Russia's second-largest retail chain and generated nearly $1.6 billion in 2006. In 2007 net sales of OJSC “Magnit” increased by 47% and amounted to 3,7 billion USD. Open Joint Stock Company-Magnit reported earnings results for the first quarter of 2008. Net sales revenue climbed 48.6% from $781.2 million first quarter of 2007 to $1.16 billion for first quarter of 2008. Increase of net revenue was caused by the expansion of trading areas and comparable growth of sales by 27.87% (without VAT). Gross margin climbed from 18.8% for first quarter of 2007 to 20.8% for first quarter of 2008, mainly due to the improvement of purchasing terms and success in perfection of logistics.

• Stores: Magnit uses a “hypermarket” format. Hypermarket is the object of commercial property of a new format for every city. Its main features are modern functional design, spacious layout and inner zoning of sale areas, large and convenient parking space, full assortment of goods for the whole family in one place, public catering.

• Strategy: Magnit serves middle- and low-income customers in 1,500 small neighbourhood discount stores (averaging 255 sq. metres) in over 470 cities of Russia. The company's opening strategy targets cities with a population less than 500 thousand – where 73% of Russian citizens live. The target audience of the discounter format is a customer with an average level of income, allowing “Magnit” chain to penetrate into small locations. Starting 2006 the company develops a new retail project – federal “Magnit” hypermarket chain, but also situated in the inner city and targeting the average level customers. As of March 31, 2008 5 hypermarkets were opened and another 10 objects are under construction.

TANDER (& MAGNIT) HISTORY

• "Tander" company is the main operational company of "Magnit" group that started its activity in 1994 as a supplier of perfumery, cosmetics and household chemical goods.

• The formation of the company's branches in the South of Russia ( Sochi , Stavropol and Pyatigorsk) began in summer 1995.

• By the end of 1996 "Tander" company has firmly ranked among the ten Russian largest distributors of perfumery, cosmetics and household chemical goods. In the same year the company's branches in Volgograd , Novorossisk, Armavir and Saratov were opened.

• The development concept of «Tander» company as a grocery-distributor was formulated by April, 1997. The company has started the development of the food segment.

• In 1997 the branches in Nizhni Novgorod and Rostov-on-Don were opened.

• In spring 1998 the Southern branches of «Tander» company have been converted from the warehouse operation system to the "cross-dock" system.

• The August 1998 crisis has retarded company's development for some time; the company had to close its Nizhniy Novgorod branch. At the same time, during the crisis, the full re-structuring of the company's activity was made; the newest operational forms and technologies were applied that allowed the company to reach the pre-crises sales volumes by August, 1999.

• 1998 – retail market development started: the first self-service store opened in Krasnodar .

• Two more "Tander" branches opened in Moscow and St.-Petersburg in 1999.

• 1999 – stores opened in all large cities of Krasnodar region and even in some villages.

• 2000 – The company's management decided to concentrate on retail chain development. All operating stores have been transformed into discounter format. The chain was named "MAGNIT" and continued its quantitative and qualitative growth under this brand.

• In 2001 "MAGNIT" chain became the largest retail chain in Russia according to the number of stores.

• In 2002 branches in Voronezh , Lipetsk and Orel were opened.

• In 2003 “Magnit” chain won the All-Russian competition «Zolotie seti 2003» (“Gold chains 2003”) in «Regional chains» nomination.

• December, 2005 - the company's management received an official letter of gratitude from V. V. Putin, President of Russian Federation “For a great contribution to the formation of Russian economy” .

• In January 2006 the reorganization of “Magnit” group of companies was completed, as a result OJSC "Magnit" became a holding company .

OWNERSHIP

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Retail chain Magnit has officially declared about the intention to hold the secondary public offering (SPO) (March 2008). As it is said in the company statement 11 300 000 stocks of the additional issue and the existent stocks belonging to Lavreno Ltd. will be offered within the SPO framework.







Subsidiaries:

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Sergei Galitsky:

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Galitsky is an economist by training and entered the business world in 1994 by founding the distribution company Transasia with several partners. The wholesale business sold perfume and beauty supplies in 1994 in his hometown of Krasnodar. In 1998 established Magnit, a chain of grocery stores with the slogan "Always Low Prices." Took the company public in April 2006; Magnit's 1870 stores generate $2.5 billion in annual sales.

Galitsky founded the discount grocery chain Magnit, Russia's first in Krasnodar in 1998. He took over from Mr. Gordeychuk – whose contract was terminated early -- as general director before the company's Russian IPO in spring 2006. Galitsky actually owns a greater percentage of the company than is immediately obvious, as he also owns Lavreno Ltd. Galitsky is Russia's 45th richest man with around $1.7 billion in assets. According to Russian state-run newspaper Ria Novosti, Galitsky is one of the few Russians who has obtained his fortune outside of the patronage associated with the privatization of the old soviet companies. He loves Ferraris and extremely expensive watches.

Labini Investments - Alexey Bogachev – Bogachev doesn't come up in the official Magnit material, although he owns the second-largest portion of Magnit. Bogachev owns around 10.28 of its shares via his ownership of Labini Investments. According to a review of Russia's richest people in 2007 by Bogachev is Russia's 100th richest man. He is also the President of the Sistema Bank. The Sistema Bank should not to be confused with the giant Sistema company – the largest private sector consumer services company in Russia. Following the fall of the Soviet Union, many people created fake documents of companies with the same name as real companies in an attempt to take their money or other assets. In many cases, the two separate companies still exist with the same name. The Sistema Bank appears to fall in this category of company. According to the Russian Central Bank Directory of Credit organizations, the Sistema bank has around $500 million rubles in credit (2003).

Bogachev is to invest $150 million in the construction of an elite residential estate with the area of 21,000 square metres on Bolshaya Nikitskaya Street, near the Kremlin in Moscow, according to a February 2008 report. Originally it was planned to build offices on the site but due to the ban by the city authorities of Moscow on building offices in the city centre the complex containing 30 flats, 20 apartments, commercial premises and an underground parking garage for 170 car spaces will be put up there. According to the edition, Mr Bogachev can get a part of the money to invest in the construction of the elite residential estate having sold about a per cent of Magnit chain in the value of $35.6 million during SPO in London in April-May 2008.

Lavreno Ltd - The company "Lavreno Ltd" lowered the share of belonging to it ordinary shares of OJSC "Magnit" down to 3% from 7.17% in April 2008, ahead of Magnit plans to lead an IPO. Magnit announced plans on March 26, 2008 to offer 11.3 million new shares and some existing shares owned by Lavreno Ltd on the London Stock Exchange and locally. According to market sources, Lavreno will sell at least 5 million own shares, which means Magnit will offer more than 20 percent of its capital and could raise up to $800 million based on its current share price. The London listing is being arranged by Deutsche Bank and Morgan Stanley.

Vladimir Gordeichuk: Considering that Gordeichuk only owns 5 percent of the company was moved out of his position recently, he doesn't seem to be the power-holder in the company. Galitsky has said Gordeichuk would, however, remain at the company.

Matthias Westman: Ahead of the company's April 2006 IPO, Galitsky introduced an independent board member --- Matthias Westman with the intention increasing Magnit's transparency. Swedish-born Westman is the managing director and chief investment manager of the investment fund Prosperity Capital Management, which he founded in the early 1990s. The appointment of Westman is a pretty good sign of the company's transparency and willingness to deal with foreign investors. Westman's Prosperity Company is known for seeking out greater transparency in Russia's business and has high-level connections.

He is a Member of the Board of Directors of Lenenergo and a Co-Founder and a Deputy Chairman of the Investor Protection Association of Russia. At Prosperity, he had the responsibility for the Moscow investment team from 1996 to 2004 and is now based in London and shares his time between London and Moscow. He is an arbiter on the RSPP ... Ethics Committee. Prior to founding Prosperity Capital, Mr. Westman was Director of Alfred Berg/ABN AMRO's Russia department between 1994 and 1996, institutional salesman with the Swedish broker H&Q in from 1992 to1994, and with the Russian desk of the Swedish Ministry of Foreign Affairs. He has a Master of Science in Business Administration and Economics from the Stockholm School of Economics and is fluent in Russian

Westman met with Putin in the Kremlin in July 2001 to object to the restructuring of Unified Energy System, Russia's electricity monopoly. Westman feared that UES Chief Executive Anatoly B. Chubais could use the plan's terms to sell assets on the cheap to political cronies, thus damaging minority shareholders like Prosperity.

Prosperity Capital Management partnered with Hermitage Capital Management, Russia's biggest foreign portfolio investor, in challenging the murky ownership structure of Kremlin-friendly Surgutneftegaz in court in 2001. William Browder, the outspoken CEO of Hermitage Capital Management, has also fought against Gazprom. As such, these companies aren't without their enemies, and around the time of the trials Browder was denied entry to Russia under a rule that bars foreigners considered to pose a threat to national security when the companies started

Prosperity was established in 1996 and manages currently about $4.0 billion in Russian and CIS equities, and is thus one of Russia's largest and best-known international investors. Major clients include European and US private banks, insurance companies, pension funds, hedge funds, and endowments.

Magnit Dirty dealings?:

Tander company, Magnit retail chain operator, reportedly made attempts in 2005 to prevent a number of federal producers and suppliers from working with Agrotorg holding. Agrotorg owns Pyaterochka brand name in Krasnodar. According to Tander’s verbal notice to those suppliers, in case they decide to work with Agrotorg their production would disappear from Magnit stores.

This essentially means that Magnit had threatened its suppliers that provide goods to its competitor, Agrotorg. If the suppliers ship product to Agrotorg, Magnit will simply find alternate suppliers. It would be like CVS telling some (smaller) supplier that it would stop stocking its product--and go elsewhere-- if the supplier kept shipping to Walgreens.

Magnit was apparently less than successful, if it was attempting to squelch Pyaterochka's business, as Pyaterochka is now Magnit's primary competitor. It should be noted that the information comes from limited sources and is not entirely verifiable. Even if the allegations are true, the moves by Magnit are relatively tame compared to other Russian business maneuvers.

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