Russia’s biggest liquor store chain targets $13bln IPO valuation

The Bell

Alcohol retailer Red & White announced Wednesday the details of its imminent initial public offering (IPO) on the Moscow Exchange. The company could be valued at up to $13 billion, less than originally anticipated, but still enough to make it the largest placement in Russia this year.

  • Mercury Retail Group, which owns Red & White (as well as liquor store chain Bristol) said the indicative IPO price range was $6–6.50 per global depositary receipt (GDR). Based on this, Mercury expects to raise $1.2-1.3 billion for the sale of 10 percent of its shares in Red & White.
  • The liquor store empire controlled by Mercury is gigantic, and their branding is a familiar sight on Russian streets. In 2020, they operated an eye-watering 8,800 stores. Bristol and Red & White’s combined revenue in 2021, will amount to about 330 billion rubles ($4.6 billion), according to InfoLine. And their profits are twice those of Russia’s leading food retailers, according to Bloomberg’s sources.
  • Mercury’s plans to float Red & White were first reported by Reuters in late September. In mid-September, a source told Bloomberg the group was hoping to raise $20 billion. At the end of October, Kommersant newspaper’s sources were talking about up to $25 billion. That would have been the biggest IPO in Russia in the last decade.
  • There are three shareholders in Mercury Retail Group: secretive billionaire Igor Kesayev, his lifelong business partner Sergei Katsiyev (who was Kesayev’s tutor at Moscow State Institute of International Relations and then started out with him in the tobacco industry); and Red & White founder Sergei Studennikov.
  • Kesayev and Katsiyev made it big in the 1990s in tobacco: they became the Russian partners for several large, international tobacco companies when the government cancelled import duties on cigarettes (that had funded, among other organizations, the National Sports Foundation, the Russian Orthodox Church and associations for veterans of the Afghan War). Between 1996 and the mid-2000s, their companies — Mercury and Megapolis — became the monopoly wholesalers for tobacco giants Philip Morris and JTI, accounting for 70 percent of the Russian market. In 2006, revenues from Megapolis alone were $2.7 billion – more than any other Russian retailer at the time. By 2012, they had risen to $12 billion.
  • Kesayev invested his money in several different projects: he spent $1 billion on the Mercury skyscraper in Moscow; purchased a famous Soviet-era arms factory; and tried to buy assets in the oil industry. Then, he moved into retail, buying a controlling stake in budget grocery chain Diksi in 2007 for $600 million, and spending almost $1 billion on Viktoria retail group four years later. However, he struggled to compete with market leaders Magnit and X5 Retail Group.
  • When Kesayev and Katsiyev decided to set up a liquor store chain called Bristol, they first looked closely at Red & White, which was already known as a successful market player. One of Katsiyev’s acquaintances told The Bell that the businessmen even offered to buy the chain from founder Studennikov, but he “abruptly rejected them”.
  • Kesayev and Katsiyev eventually got Red & White, but after the Federal Tax Agency and security service officers carried out a series of raids on Red & White’s offices and warehouses in 2019. None of The Bell’s sources were in any doubt that the sale to Kesayev and Katsiyev was connected with the investigation. But nobody could say with certainty that the buyers had put the squeeze on Red & White. Studennikov received 49 percent of the new, combined business, while Kesayev and Katsiyev took a majority stake of 51 percent.
  • Mercury Retail Group disposed of its most troublesome asset earlier this year when it sold Diksi — Kesayev’s first retail business — to market leader Magnit for 93 billion rubles ($1.2 billion).

Why the world should care: The Russian stock market is booming. Some of the biggest IPOs in recent years include online marketplace Ozon in 2020 (valuing the company at $6.2 billion), and low-cost retail chain Fix Price in March ($8.3 billion). But investors who went for these assets might be disappointed. FixPrice shares have fallen 14 percent since its IPO, while Ozon shares have risen just 11 percent since it floated — three times less than the Moscow Exchange Index over the same period.


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