Moscow : X5 Retail Group, Russia's largest retailer, agreed to acquire Moscow-based discounter Kopeyka for 35 billion rubles ($1.1 billion) in cash to reinforce its market leadership as Wal-Mart Stores seeks to enter the country.

X5, controlled by billionaire Mikhail Fridman's Alfa Group, will also assume net debt of no more than 16.5 billion rubles, bringing the total transaction value to 51.5 billion rubles, the Moscow-based company said yesterday in a statement.

The purchase of closely held Kopeyka will add about 700 stores in Russia, where rising commodity prices and consumer spending are fuelling an economic recovery. Wal-Mart's attempts to enter the country by acquisition have been frustrated by disagreements on price, the Bentonville, Arkansas-based company said in June. The world's largest retailer held talks earlier this year to acquire Kopeyka, according to Kommersant newspaper.

"We expect Wal-Mart to enter the Russian market within two-to-three years, and we think that they will seriously consider M&A opportunities," Mikhail Terentiev, a London-based analyst at Nomura Holdings, said in a phone interview. Kopeyka will strengthen X5's leadership of the market, he said.

Wal-Mart has pursued several acquisition opportunities in Russia, though has been thwarted by disagreements over price, international chief Doug McMillon said in June. A call to the company's press office out of hours wasn't immediately returned.

The transaction price values Kopeyka at 12.1 times estimated earnings before interest, taxes, depreciation and amortisation, according to Maria Kolbina, an analyst at VTB Capital in Moscow. The compares with 14.9 times for X5 and 10.8 times for competitor OAO Dixy Group, Kolbina wrote in a note.

Economic growth

Russia has attracted foreign investment as its economic growth is forecast to accelerate to 4.3 per cent next year from 4 per cent in 2010, according to the International Monetary Fund. PepsiCo last week agreed to buy control of Wimm-Bill-Dann Dairy & Juice Co. for $3.8 billion to become the country's biggest food-and-beverage company.

Adding Kopeyka's 317 discount stores in Moscow and surrounding areas to its own 422 outlets will give X5 a market share of about 13 percent in the capital city, leaving "significant" room for growth, X5 said.