Update on the company’s business
NOT FOR PUBLICATION, DISTRIBUTION OR RELEASE, IN WHOLE OR IN PART, DIRECTLY OR INDIRECTLY, IN OR INTO, OR TO ANY PERSON IN, THE UNITED STATES, CANADA, AUSTRALIA, JAPAN, SOUTH AFRICA OR IN OR INTO, OR TO ANY PERSON IN, ANY OTHER JURISDICTION WHERE TO DO SO WOULD CONSTITUTE A VIOLATION OF THE LAWS OF SUCH JURISDICTION.
7 November 2022, Moscow, Russia. Detsky Mir Group (“Detsky Mir”, “PJSC Detsky Mir” or the “Company”, MOEX: DSKY), a specialised retailer and the leader in the children’s goods sector in Russia and Kazakhstan, informs about the impact of sanctions and regulatory changes on the Company’s business as well as the proposed plans by the Board of Directors.
Operations
Against the backdrop of the sanctions pressure on the Russian economy and a decrease in the real disposable income, consumers become more price conscious, which is particularly visible in specialised retail. In addition, Detsky Mirnotes significant changes in its business conditions, such as collapsing of usual supply chains and unavailability of conventional sources of imported products.
Public capital markets
The free float of the Detsky Mir’s shares is 60%. A significant part of the Company’s share capital is owned by foreign investment funds.
According to the recent regulatory developments in Russian law, foreign investment funds from unfriendly jurisdictions cannot trade on the Moscow Exchange. Moreover, because of the overall negative view of Western regulators on the Russian stock market, a number of investors are facing challenges when voting on General Meetings of Shareholders, which may block decisions that are critically important for the Company’s business and does not allow to distribute dividends without the risk of their blocking in the C-type accounts.
Given the abovementioned and reflecting a high market volatility and the need to ensure sufficient funding to maintain the market position of Detsky Mir, the Company’s Board of Directors does not plan to propose to the EGM a payment of interim dividends for 9 months of 2022.
Ensuring business resilience
The Company is implementing a business continuity action plan and is making every effort to continue to operate steadily in the face of ongoing inflationary pressures, growing capital expenditures and customers’ declining purchasing power.
The primary mission of Detsky Mir remains to protect customers’ interests and provide a full range of essential children’s goods at affordable prices to the general public, and to maintain wealth of our employees, contractors, suppliers and other stakeholders.
Converting Detsky Mir into a private business
Taking into account the above factors, the Board of Directors plans to consider the gradual transformation of Detsky Mirinto a private company. The procedure assumes a reorganisation of PJSCDetsky Mir, gradual transition of shareholders from the public company PJSCDetsky Mirto a non-public company LLC Detsky Mir and a tender offer for shareholders of PJSCDetsky Mirwho have not transferred to LLC Detsky Mir. Following these three steps, PJSCDetsky Mir may be liquidated subject to receipt of all necessary corporate approvals.
LLC Detsky Mirwill continue its operations in children’s food and non-food product retail and will be able to focus on developing its existing retail chain, as well as to manage its business in an efficient and flexible way.
- Reorganisation of PJSC Detsky Mir
The Board of Directors plans to recommend that, at an Extraordinary General Meeting of Shareholders (the “EGM”), the Company’s shareholders approve the launch of the reorganisation of PJSC Detsky Mir in the form of a spin-off of LLC Detsky Mir as a subsidiary operating company (the “Reorganisation”). The date of the EGM will be announced later.
Following the Reorganisation, LLC Detsky Mir, as the subsidiary operating company of PJSC Detsky Mir, will receive assets required to conduct business activities.
Shareholders of PJSC Detsky Mir, who do not participate in voting on the Reorganisation or vote “against”, will be entitled to demand redemption of their shares at a price to be determined by the Board of Directors in an amount not lower than the volume-weighted average price of shares of Detsky Mir on the Moscow Exchange for one month preceding the date of the decision to hold the EGM. The amount of funds that PJSC Detsky Mir may spend on the redemption of shares will not exceed 10% of the net assets value of PJSC Detsky Mir as of the EGM date (currently 10% of the net assets value amounts to approximately RUB 1.6 billion). If the number of shares tendered for redemption exceeds the number of shares that may be redeemed in accordance with the above limit, the shares will be redeemed from the shareholders pro rata to the tendered shares.
The Company draws the attention of non-resident investors from unfriendly jurisdictions (such as US, EU countries, Canada and other countries imposing sanctions on Russia) to the fact that the funds received during the share redemption process will be transferred to C-type accounts opened with Russian banks. The ability to use the funds in the C-type accounts is restricted by Russian law. Non-residents may not transfer such funds to accounts in other countries without a special permission from relevant state authorities.
Although PJSC Detsky Miris not on sanctions lists of foreign states, the Company recommends that non-resident investors consult with their responsible legal and compliance departments regarding their ability to participate in voting on the Reorganisation, due to the possibility that certain depositories receiving voting instructions may be designated on sanctions lists of foreign states.
If approved by the EGM, the Reorganisation will be completed within approximately 6 months of the EGM decision.
2. Possibility for shareholders to transfer to a non-public company
Upon completion of the Reorganisation, it is planned that shareholders of the public company PJSC Detsky Mir will be offered the opportunity to exchange their shares for shares in a subsidiary of PJSC Detsky Mir that will hold a 100% interest in the private company LLC Detsky Mir. The terms of the exchange offer will be determined by the Board of Directors of the Company and if approved, will be announced to shareholders in subsequent communications.
3. Share tender offer
Upon completion of the Reorganisation and partial transfer of shareholders to LLC Detsky Mir, it is planned that in 2023 a subsidiary of the Company will make a tender offer to all shareholders to sell their shares in PJSC Detsky Mir (the “Offer”). The tender price will be determined by the Board of Directors in an amount which is not lower than the volume-weighted average price of Detsky Mir’s shares on the Moscow Exchange for six months immediately preceding the date of the mandatory tender offer made in accordance with the Russian Law on joint-stock companies, and not lower than the value determined by an independent appraiser.
The Company plans to request an authorisation from the Government Commission on Monitoring Foreign Investment in the Russian Federation (the “Government Commission”) to pay consideration in RUB for the shares sold in the Offer to non-resident investors from unfriendly jurisdictions to accounts specified by them, without the use of type “C” accounts. If the authorisation of the Government Commission is granted, the non-resident investors will be able to use the received money at their discretion. The Company underscores that this request will not extend to the funds received in the course of the share redemption during the Reorganisation, referring to the 1st step of the process.
In the process of transformation into a private business, the Company will take into account the shareholders’ interests and inform the stock market participants of its further actions.
IMPORTANT INFORMATION
This announcement does not constitute a public offer, advertisement or a voluntary or mandatory tender offer under Russian law.
NOT FOR PUBLICATION, DISTRIBUTION OR RELEASE, IN WHOLE OR IN PART, DIRECTLY OR INDIRECTLY, IN OR INTO, OR TO ANY PERSON IN, THE UNITED STATES, CANADA, AUSTRALIA, JAPAN, SOUTH AFRICA OR IN OR INTO, OR TO ANY PERSON IN, ANY OTHER JURISDICTION WHERE TO DO SO WOULD CONSTITUTE A VIOLATION OF THE LAWS OF SUCH JURISDICTION.
This announcement may contain forward-looking statements concerning the Company. Generally, the words “will”, “may”, “should”, “could”, “would”, “can”, “plan”, “opportunity”, “believes”, “expects”, “intends”, “anticipates”, “estimates” or similar expressions identify forward-looking statements. The forward-looking statements involve risks and uncertainties that could cause actual results to differ materially from those expressed in the forward-looking statements. Forward-looking statements include statements relating to business and management strategies of the Company. Many of these risks and uncertainties relate to factors that are beyond the Company’s ability to control or estimate precisely and therefore undue reliance should not be placed on such statements which speak only as at the date of this announcement. The Company assumes no obligation in respect of, and does not intend to update, these forward-looking statements, except as required pursuant to applicable law.
For additional information:
Nikita Moroz
Head of Investor Relations
Tel.: + 7 495 781 08 08, ext. 2315
Natalya Rychkova
Head of Public Relations
+7 495 781 0808, ext. 2041
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