Monday, 19 November 2007

TPG recruits Goldman for Russian deal

Financial News

Jason Corcoran in Moscow and Catherine Craig in London

19 November 2007

US private equity firm TPG Capital is teaming up with investment bank Goldman Sachs’ buyout arm to help finance its acquisition of Russian supermarket chain Seventh Continent as TPG seeks to expand its European network.

The proposed $2bn (€1.4bn) takeover would be TPG’s first since it set up an office in Moscow this year and would represent the largest Russian transaction by a global buyout fund.

TPG enlisted the help of Goldman Sachs Private Equity in its bid to buy 7K-Investholding, which owns 74.8% of Seventh Continent and 99.5% of MCapital, a real estate company that rents about 40% of selling space to Seventh Continent.

The deal is being led by TPG partner Stephen Peel, who was previously vice-president in charge of German investments at Goldman Sachs. A source close to TPG said: “Goldman Sachs has been brought on now TPG wants to buy all 7K-Invest. The firm wanted to buy a 60% stake but those plans have changed.”

TPG signed an exclusive memorandum of understanding with the retailer in September, under which the firm had a right to buy a stake in 7K-Invest. The transaction value was not disclosed but was understood to be $1.3bn.

The chain’s founder and politician Vladimir Gruzdnev recently sold his half of 7K-Invest worth $1bn to his partner Alexander Zanadvorov ahead of the parliamentary elections on December 2, which he is contesting.

The original deal was scrapped because due diligence had taken longer than expected. The source said: “Gruzdnev had to sell quickly to comply with an order by President Putin for politicians to distance themselves from big business ahead of the Duma elections.”

Svetlana Sukhanova, a retail analyst at UBS, said Zanadvorov could sell to TPG and Goldman Sachs or refinance through a secondary listing on the London Stock Exchange. She said: “He’s in a strong position and he can do what he wants. He has big, reputable investors waiting to invest and this would be the biggest Russian deal by an international buyout fund.”

Zanadvorov received loans worth $560m from Deutsche Bank and $430m from Nordea Bank. He previously said shareholders wanted to list 25% of equity on the London Stock Exchange in the first quarter of next year, bringing the free float up to 50%.

A TPG spokesman in Moscow said: “A letter of intent was signed with Seventh Continent on September 3 but nothing has been completed. This is TPG’s first deal in Russia and we are careful not to comment further until it is completed.”

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