February 15, 2012 / 10:39 AM / 8 years ago

UPDATE 1-Wal-Mart sees promise in Russia, X5 denies deal

* Retailer denies talks to sell Karusel

* X5 could demand $2 bln for chain - Uralsib

* X5 shares up 0.5 pct in London trade

By Natalia Ishchenko

MOSCOW, Feb 15 (Reuters) - U.S. retail giant Wal-Mart , which has flirted with entering Russia for years, still sees promise in the vast country, and will continue to look for the right opportunity, it said in a statement on Wednesday.

Its comment followed a report in St Petersburg-based Russian magazine “Delovoi Peterburg” that it is in talks to buy the Karusel hypermarket chain from X5, Russia’s top food retailer by sales. The report said that a deal may be announced in around two weeks.

Analysts estimated such a deal could be worth $2 billion.

An X5 spokeswoman said: “We deny these reports categorically.”

Wal-Mart has looked at Russia for years but appeared to have given up in December 2010 when it closed its Moscow office due to a lack of acquisition opportunities.

It reawakened speculation it was still interested in Russia when it hired Lev Khasis, the former head of X5, as a senior vice president in September 2011.

A research report by analysts at Uralsib said X5 could ask around $2 billion for the hypermarkets which “would provide quick entry to Russia for Walmart”.

X5’s London-listed shares closed up 0.5 percent at $25.2.

A Wal-Mart spokesman said in an email that the company had no announcements and nothing new to share.

“We examined the Russian market for several years and concluded the right entry strategy is through acquisition,” Kevin Gardner wrote, adding that Wal-Mart closed its Moscow office because it saw no clear acquisition partner in the near term.

“We still believe the Russia market has promise and we’ll continue, as we do in markets all over the world, to watch for the right market-entry opportunity,” he said.

BEST MARKET

Wal-Mart’s Khasis told the Russia Today TV channel earlier this week that Russia “is the best market for retail in the world” and that “the only way of entering the Russian market now is buying some of the existing players”.

Renaissance Capital analysts added in a note that retailer O’Key and private equity-owned Lenta could be potential targets for Wal-Mart, as well as X5.

Lenta is majority owned by U.S. private equity firm TPG Capital which took control of the St Petersburg-based hypermarket chain last year following a lengthy struggle with Lenta’s founder over strategy.

“We interpret Khasis’s statement, which must have been approved at the top level of Walmart, as a positive message for the sector,” they said.

Wal-Mart had been in talks to buy Karusel in 2007, a Karusel co-owner said at the time. Karusel was bought by X5 in 2008.

X5 is part of oligarch Mikhail Fridman’s Alfa Group, which spans banking, oil and telecoms.

The company’s stock plummeted last year as stumbling sales and a struggle to integrate its acquisition of Kopeika sparked a cut in growth forecasts and the company’s first quarterly sales decline since its creation.

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