Press Release | St. Petersburg | 16 December 2021

THIS ANNOUNCEMENT CONTAINS INSIDE INFORMATION

Lenta to Acquire Utkonos to Become One of Russia's Leading E-grocery Platforms

Key highlights: 

·  The contemplated acquisition will enable Lenta to expand its online market share and acquire unique competences and loyal customer base.

·  The base purchase price for the transaction is RUB 20 billion.

·  Consideration to be financed by an additional issuance of shares of Lenta IPJSC to be placed by closed subscription to Severgroup in which Severgroup commits to pay into the share capital of Lenta IPJSC the amount of RUB 20 billion and other shareholders have preemptive rights to acquire additional shares. The subscription price for this issuance will be RUB 1,087 per share.

·  The transaction was approved by a Special Committee of Lenta's Board of Directors; the additional share issue is subject to shareholder approval at the extraordinary general meeting of shareholders to be held on 11 February 2022, for which the record date is 19 January 2022.

St. Petersburg, Russia, 16 December 2021: Lenta IPJSC (LSE: LNTA, MOEX: LNTA and LENT), one of the largest multi-format retail chains in Russia, today announces an agreement to acquire online-retailer Utkonos to create a leading e-grocery platform covering all key shopping missions and market segments. The sale is structured as the purchase of the entire participation interest of LLC "Noviy Impuls-50" from Severgroup LLC (in such capacity, the "Seller"). The base purchase price for the transaction is RUB 20 billion, which will be financed by an additional issuance of Lenta's shares to be placed by closed subscription to Severgroup, in which other shareholders may participate by exercising preemptive rights to acquire additional shares, with Severgroup committing to pay into the share capital of Lenta IPJSC the amount of RUB 20 billion.    

The acquisition of Utkonos will enable Lenta to significantly expand its online market share with an additional delivery platform featuring a loyal customer base, unique competencies and competitive advantages and the ability to compete in the Moscow online market more effectively, especially within the upper-middle and premium segments.

Utkonos Overview

Utkonos is an online-only food retailer based in Moscow and is a pioneer of the e-grocery segment in Russia. In 2020, Utkonos' share of the Moscow e-grocery market amounted to approximately 10%. Outside Moscow and Moscow region, Utkonos also delivers orders in the cities of Kaluga, Tver, and Tula. In 2018, 2019, and 2020, Utkonos' revenue was RUB 8.5 billion, RUB 8.6 billion, and RUB 14.3 billion, respectively. In 2020 Utkonos reached 2.7 million orders with an average ticket of RUB 5,359. In 1H 2021, Utkonos total sales increased by 11% compared to the same period of the prior year to RUB 7.8 billion.

Currently, Utkonos operates two wholly owned warehouse dark stores totaling 80,000 square meters and two rented dark stores totaling 21,000 square meters, located in Moscow and Moscow region. The company utilizes its own logistics and fulfillment infrastructure consisting of 920 vehicles.

Utkonos unique assortment constitutes more than 85 thousand SKUs with the widest fresh assortment amongst online and offline food-retailers in Russia. Utkonos offers affordable goods of the highest quality under six own brands, with a total assortment of private label goods of more than 400 SKUs.

Utkonos customers can place orders through the website or via a convenient mobile application. During 9M 2021, Utkonos had more than 330,000 customers.

Relationship of the parties

The Seller owns 100% of the share capital of "Noviy Impuls-50" LLC, which operates the Utkonos business. The Seller is also a major shareholder of Lenta, owning 77.99% of Lenta's shares, representing 78.73% of the voting rights.

Transaction Details

Given Severgroup LLC's common ownership of Lenta and Utkonos, an independent committee of the Board of Directors (the "Special Committee") was formed, to review, consider, negotiate, and approve the transaction and to consider the contemplated additional issue of shares by closed subscription to fund the transaction. The Special Committee is comprised of Lenta's three independent directors, and chaired by Stephen Johnson, the senior independent director.

A thorough due diligence and valuation process was conducted through the engagement of an international Big 4 consultancy, evaluating Utkonos' business model, recent performance, and future growth prospects.

The Special Committee also engaged Citigroup Global Markets Limited ("Citi") as its financial adviser to render an opinion to the Special Committee regarding the purchase price payable by Lenta in the transaction and received an opinion, dated 14 December 2021, of Citi to the effect that, as of such date and based on and subject to various factors, assumptions and qualifications, such purchase price was fair, from a financial point of view, to Lenta.[1]

The Special Committee unanimously approved the transaction, and in accordance with Lenta's charter, the Board of Directors approved the transaction. In light of the interest in both Lenta and the Seller, Mr. Mordashov did not vote on the deal approval at the Board meeting. The Company's Board of Directors also adopted the decision to convene the Extraordinary General Meeting (the "EGM") to approve the increase of the share capital through additional issuance of shares by closed subscription to finance the acquisition.

Transaction Closing

Under the terms of the purchase agreement, the entire participation interest of LLC "Noviy Impuls-50" is to be transferred to Lenta by the first week of February 2022 while Lenta is expected to make payment to the Seller following its receipt of funds generated by the share placement described below. The base price of RUB 20 billion is subject to adjustment for cash held by Utkonos at completion (Utkonos will have no financial indebtedness at completion).     

The combined online business unit will be titled Lenta-U. Following the deal completion, Danny Perekalsky, CEO of Utkonos, will take the position of the CEO of Online business unit Lenta-U. Danny will be responsible for shaping the strategy, executing the expansion of Lenta's Online business, and ensuring the Online business achieves its key operational and financial targets. Danny will report directly to the CEO, Vladimir Sorokin. Dmitry Skiba will take the position of the Deputy CEO of Online business unit Lenta-U.

Share placement by way of Closed Subscription

In order to finance the transaction, Lenta will place an additional issue of ordinary shares through a closed subscription to Severgroup LLC (the "Subscription"). Other shareholders, as of the record date for the EGM, may use their preemptive right to acquire additionally issued shares, if they did not participate in the voting or voted against the Subscription.

The EGM to approve the increase of the share capital by the way of the Subscription will be held on 11 February 2022, in the form of absentee voting. The record date for compiling the list of persons entitled to participate in the EGM is 19 January 2022.  Severgroup LLC has confirmed to Lenta that it plans to vote in favor of the increase of the share capital at the EGM.

For this purpose, a GDR holder cannot exercise preemptive rights in the Subscription.  Accordingly, if a GDR holder wishes to be in a position to exercise preemptive rights to acquire the shares additionally issued by the closed subscription, the holder's GDRs must be converted into shares no later than 19 January 2022. Shareholders of record as of 19 January 2022 (so long as such shareholder did not participate in the voting or voted against the Subscription) will have a period of at least 45 days from the date of notice is given or publicly disclosed by the issuer during which to exercise their preemptive rights. For guidance on how to convert GDRs into shares, please access this link: http://www.lentainvestor.com/en/investors/shareholders/shareholder-capital.     

It is anticipated that in the Subscription, approximately RUB 25.643 billion worth of shares would be offered at a subscription price of RUB 1,087 per share, as was approved by the Board of Directors based on the 3-month volume-weighted average price (VWAP) for GDRs traded on the Moscow Exchange as calculated on 14 December 2021.  Severgroup LLC has given a firm commitment to Lenta to pay into the share capital of the Company the amount of RUB 20 billion by the exercise of its rights in the Subscription and acquisition of 18.4 million shares, subject to timely execution of the transaction and the Subscription.  To the extent other shareholders exercise their preemptive rights or Severgroup purchases shares in excess of its commitment, Lenta will use the resulting proceeds for general corporate purposes. 

The Company will provide further information regarding the Subscription in due course.

Guidance

As the transaction will close next year, Lenta's full year 2021 guidance remains unchanged. The Company will provide full year 2022 guidance together with its Q4 and FY 2021 results announcement in February 2022.

The Company reserves the right to revise its guidance during the course of the year or when additional information regarding the effect of the ongoing events becomes available.

Vladimir Sorokin, Lenta Chief Executive Officer, commented:

"The acquisition of Utkonos enables Lenta to significantly enhance our online competitiveness in Moscow with an additional delivery platform featuring a loyal customer base, unique competencies, such as ultra-wide unique assortment, strong fulfillment infrastructure and high client satisfaction rates. Together, Lenta Online and Utkonos will create a comprehensive online offering covering all key shopping missions and market segments.

This deal is closely aligned with Lenta's strategic priorities, which we determined and announced earlier this year. The acquisition of Utkonos will allow Lenta to grow our online business and overall food retail business in Moscow, which is one of our strategic regions where we chose to compete.

Utkonos will become part of Lenta's online business division. The combined online business unit will retain unique competencies and teams inherent to the Lenta Online and Utkonos brands. Together with Utkonos, we will be able to provide the full scope of online delivery services, from express delivery from our Mini Lenta convenience and supermarkets to planned or scheduled delivery from Utkonos dark stores. We see a strong cultural fit between Utkonos and Lenta Online and are pleased to welcome over 5,200 new colleagues from Utkonos to the Lenta family."

Steve Johnson, Lenta Senior Independent Director, added:

"Online is an important element of Lenta's strategy and the acquisition of Utkonos is in line with the Company's strategic goal to reach 10% share of Russian e-grocery market by 2025.

As the Chairman of the Special Committee, I can confirm that we have carefully reviewed the investment proposal taking into account the independent valuation and the fairness opinion that was rendered to the Special Committee. As such, we believe this transaction will bring additional value for all of Lenta's stakeholders."

The individual responsible for releasing this announcement is Tatyana Vlasova, Head of Investor Relations

For further information, please visit www.lentainvestor.com or contact:

About Lenta

Lenta IPJSC (LSE: LNTA, MOEX: LNTA, LENT) is a leading Russian multi-format food and FMCG retailer. The company operates hypermarkets, supermarkets, and recently launched a new proximity store format under the brand "Mini Lenta." It also provides customers the option to shop online via its click-and-collect and express delivery services. Lenta is Russia's largest hypermarket operator and the fourth largest food retailer overall by Sales. The company was founded in 1993 in St. Petersburg and as of September 30, 2021, operated 255 hypermarkets and 419 supermarkets in 88 cities across Russia with more than 1.7 million square meters of Selling Space. The average Lenta hypermarket has approximately 5,500 square meters of selling space, the average Lenta supermarket has 800 square meters, and the Mini Lenta format is 500 meters on average. The company operates 14 distribution centers to supply all of its stores. 2020 Revenues were RUB 445 billion (approximately USD 6 billion).

Forward-Looking Statements

This announcement includes statements that are, or may be deemed to be, "forward-looking statements." These forward-looking statements can be identified by the fact that they do not only relate to historical or current events. Forward-looking statements often use words such as "anticipate," "target," "expect," "estimate," "intend," "expected," "plan," "goal," "believe," or other words of similar meaning. By their nature, forward-looking statements involve risk and uncertainty because they relate to future events and circumstances, a number of which are beyond Lenta's control. As a result, actual future results may differ materially from the plans, goals, and expectations set out in these forward-looking statements. Any forward-looking statements made by or on behalf of Lenta speak only as of the date of this announcement. Except as required by any applicable laws or regulations, Lenta undertakes no obligation publicly to release the results of any revisions to any forward-looking statements in this document that may occur due to any change in its expectations or to reflect events or circumstances after the date of this document.