Hristo Kovachki, the Bulgarian business tycoon, will sell supermarket chain Evropa to Lithuanian company Maxima, owner of the rival T-market chain in Bulgaria. The two companies have signed a preliminary contract and have asked the competition regulator to approve the deal.

The sale will only affect the commercial side of business, with Kovachki retaining ownership of the assets, while the retail chain itself would be operated by Maxima's Bulgarian subsidiary. The deal would include the 20 stores owned by Evropa and the four it rents, as well as four other locations picked for future stores, Maxima Bulgaria executive director Pavel Filipov said. T-market currently operates 27 shops in Bulgaria and would become one of the largest retailers in terms of number of outlets after the deal goes through.

Neither company would disclose financial details. "We have signed a preliminary contract. Discussions with shareholders on the deadlines regarding the actual transaction and the price have already started, but there is no agreed price. I expect the deal to be finalised in two months' time," Filipov said.
The buyer is yet to decide whether to keep the Evropa name or change it to T-market, nor has a decision been made on how to develop the new stores, he said.

Evropa was one of the last Bulgarian supermarket chains left on the market, as most Bulgarian companies have been taken over by foreign firms in recent years. Now the sole exception is Fantastiko.

Kovachki has long been rumoured to be interested in selling Evropa. Before the current financial crisis hit the stock market, he had said that he would sell his stake in the chain on the bourse. Foreign retailers and investment funds had shown interest, but the high price demanded by the businessman deterred them, industry sources said. The difference this time is that Kovachki needs to raise 100 million leva to pay for the 100 per cent stake in the Bobov Dol heating utility, which he was picked to buy from the state earlier in 2008.

Going once...
There are several methods to evaluate how much a retail chain is worth. When one takes into account only the sale of the business, without the assets, the price ranges between 20 and 50 per cent of its annual revenue, depending on factors such as the market's potential, the chain's capacity for future growth and expansion, competition and the general economic situation in the given country.

Evropa's sales in 2007 amounted to 120 million leva, generated by 21 stores, which would put the retailer's price at between 12 and 30 million euro. Given the current stage of development of the Bulgarian market and its growth potential for the near future, the price would likely be around 30 per cent of the annual turnover at about 18-20 million euro, industry sources have said.

Kovachki opened his first store in 1992, but the chain was established only in 2001. Last year, Kovachki consolidated the ownership of the stores in one company, which was to be listed on the Bulgarian Stock Exchange. The chain ranked sixth in terms of sales revenue in 2007, behind German retailers Metro, Billa and Kaufland, as well as Piccadilly, sold in 2007 to Serbia's Delta Max Group, and Fantastiko.

T-market stepped on the Bulgarian market in 2005. Its owner, Maxima, is the biggest retail operator in Baltic states. Over just three years, the retailer has opened 30 stores, building a network with nationwide coverage. Earlier in 2008, T-market bought eight stores from the Familia chain, which were incorporated into T-market's network. The chain has ambitious plans to expand further, including to other segments of the market.

Last year, it reported an increase of 66 per cent in sales to 95 million leva, from 57 million a year earlier. For the first nine months of this year alone, the company has already surpassed the 90 million leva mark, which puts the retailer on track to record a 35 per cent growth rate.
T-market is now positioned as a discount store, with an emphasis on the low price of merchandise. For now, its only direct competitor is Kaufland, but competition is set to grow when two more German chains, Lidl and Plus, open their first stores in the country in 2009. Also next year, French chain Carrefour will open its first outlet in Bulgaria, which will only increase the competition for customers between retailers.

Kapital weekly, issue 44