UPDATE 2-Russia's Mercury to buy control of retailer Dixy

(Rewrites, adds analyst comments, updates share price)

MOSCOW, Dec 6 (Reuters) - The owner of Russian discounter Dixy Group DIXY.MM has agreed to sell his firm to holding group Mercury after months of speculation the indebted firm was seeking a strategic deal as the fragmented sector consolidates.

In a joint statement on Thursday, the companies said a Mercury unit, Russia's No.1 consumer packaged-goods distributor, Megapolis, had agreed to buy a holding company that runs the assets of Oleg Leonov, Dixy's founder and main owner, including his 50.96 percent stake in Dixy Group DIXY.RTS.

The companies did not disclose financial details of the deal, which is due to close before Feb. 1, 2008, and has yet to be approved by the state competition watchdog.

Russia’s retail food market has been showing double-digit growth in the recent years on the back of a consumer boom fuelled by the robust economic expansion of the oil exporting country.

But the industry has yet to be consolidated. Analysts expect major players to expand aggressively in the regions and predict the arrival of big global players which seek exposure to booming consumer markets in the emerging countries.

“We are going to use our ability to create on the base of the public company, Dixy Group, one of the largest players in the Russian food retail market,” Mercury First Vice-President Sergei Katsiev said in the statement.


Mercury, which estimates its turnover at more than $8 billion in 2007, also owns a large stake in London-listed Russian oil firm Sibir Energy SBE.L, as well as real estate, retail and civil and military equipment-making assets.

Analysts said Mercury’s experience and potential synergy benefits from the distribution and real estate development businesses could be positive for Dixy’s operational performance.

“We believe that the new owner will provide a massive boost to Dixy’s development,” said analysts at broker Troika Dialog.

In August, Russian media speculated that Dixy was considering merging with bigger Russian rivals X5 Retail Group PJPq.L or Magnit MGNT.MM to improve the firm's financial situation, clouded by heavy debt.

“If the acquisition is completed without adding debt to the company, we think the transaction will have a rather positive effect on Dixy’s credit,” Renaissance Capital said.

In the first nine months of 2007, Dixy’s revenues rose by 42 percent year-on-year to $990 million, while net profit almost tripled to $5.8 million, although the company said net-income growth was limited by the debt pressure.

On Dec. 1, Dixy operated 372 stores mostly in the discount format in central and northwest Russia and in the Urals.

Dixy’s stock closed up 3.69 percent at 365 roubles ($14.87). That compares with $14.40 in Dixy’s domestic initial public offering in May, when it raised $360 million.

Around 48 percent of Dixy’s shares are freely floated. (Editing by Quentin Bryar)