Finnish retailer Kesko has agreed to sell 12 Russian stores of home goods and repair “K-Rauta” to French Leroy Merlin. The amount of the transaction amounted to about €169 million, or about 12 billion rubles, the company said on February 16, 2018.
In 2017, Kesko operated 14 hypermarkets in Russia selling construction materials and home goods, most of which are located in St. Petersburg. As part of this deal, Kesko sells 12 K-Rauta facilities in St. Petersburg and Moscow region.
Leroy Merlin will receive eight facilities in St. Petersburg, three in Moscow and one in Kaluga. Stores will be renamed to Leroy Merlin. Two stores in Yaroslavl and Tula were not included in the deal and will stop working during the first half of 2018. It is expected that the transaction will be closed during the first half of 2018.
“Kesko ceases trading operations in Russia and sells their 12 stores of the chain “Leroy Merlin” – said in a statement. Kesko has been working in Russia for over 20 years. The network of stores “K-Rauta” was the last Russian asset of Kesko.
In recent years the company got rid of its Russian assets and sold two of its networks in 2016: the food retailer “K-Ruoka” was sold to Russian “Lenta” (11 stores in St. Petersburg and its surroundings) for 11 billion rubles and a network of sporting goods “Intersport” in Russia to a group of private investors.
“According to its strategy, Kesko group focuses on trade in food products, goods for repair and renovation, cars. In recent years, we have grown significantly in the field of construction and technical trade. Our goal is to increase sales and improve profitability, especially in the stable and growing markets of Northern Europe. We decided to leave the Russian market. Our investments in Russia did not meet expectations, and expansion outside of St. Petersburg and Moscow would require significant additional investments. The deal will have a minor impact on Kesko’s net revenue and operating profit, but will significantly increase the return on invested capital,” said Mikko Helander, President and CEO of Kesko.
Experts and market players estimated the amount of the transaction at 4 billion rubles. For the French retailer, the purchase of K–Rauta became the first acquisition transaction in Russia – before that Leroy Merlin expanded organically.
Director General of Leroy Merlin in Russia Vincent Gentil notes: “This is a serious step for the company’s development. It is important for us to strengthen leadership in the Northern capital of Russia, St. Petersburg is a city with strong competition and potential, where we are represented by only 4 stores.”
“Leroy Merlin” develops in the Russian market much more actively than other DIY players. According to SPARK, the revenue of LLC “Leroy Merlin Vostok” in 2016 amounted to 188.3 billion rubles. The company manages 75 hypermarkets and employs more than 23,000 people in 39 Russian cities. There are more than 450 Leroy Merlin stores around the world.
The K-Rauta chain, in turn, has 14 stores, eight of which are located in St. Petersburg. According to SPARK, in 2015 the turnover of “K-Rauta Rus” increased by 1.1% to 13.6 billion rubles, and the net loss amounted to 492 million rubles. In 2016, the turnover increased by 1.7% to 13.8 billion rubles, the loss increased to 817 million rubles.
In 2017, KESKO’s DIY sales network in Russia recorded a net sales volume of 184 million euros and made a profit of 0.6 million euros, according to the Finnish Corporation.