DIA Board Attacks LetterOne Proposal, Defends Own Solution

(Bloomberg) -- Spanish grocer DIA criticized a takeover bid by LetterOne as inadequate on resolving the challenges facing the troubled company, as it also invited its main shareholder to work toward a long-term remedy.

LetterOne’s restructuring plan “does not provide effective and readily available solutions to the short-term challenges the company is facing,” the supermarket chain said in a presentation filed with regulators Sunday. “In the absence of any such solution, the company might be forced to file for dissolution or insolvency.”

DIA’s board is trying to fend off plans by Russian billionaire Mikhail Fridman to restructure the company after his London-based investment vehicle announced an offer at the start of February to buy the 71 percent it doesn’t already own. DIA says LetterOne’s plan, which is conditional on achieving control before any new capital is put in, may fail to address the issue of negative equity in time to avoid the company being dissolved.

Distribuidora Internacional de Alimentacion SA, to give the company its formal name, has called a shareholders’ meeting later this month so investors can decide on the merits of the rival restructuring plans.

DIA says its own plan for a 600 million-euro ($682 million) capital increase will resolve the issue of the company’s current negative equity and secure funding to repay a 306 million-euro bond maturing in July. LetterOne, which owns 29 percent of DIA, has pledged to back a 500 million-euro share sale.

Profit Warning

DIA’s problems became evident last August when it dismissed Ricardo Curras, its CEO since 2009. The company issued a profit warning and suspended its 2019 dividend in October.

Even though DIA is critical of LetterOne’s plan, it said it’s own operating plan and that of Fridman’s vehicle were similar. A new chief executive officer has been in place since the end of December and plans are afoot to improve sales, re-engineer the operating model for stores and implement a new marketing strategy, DIA said.

DIA’s board is “very appreciative” of LetterOne’s expertise and commitment to invest additional funds and is willing to work with it to reach a long-term solution, the company said.

LetterOne invested in DIA because it sees a chance to create a solid No. 2 player in Spain, which has a more fragmented industry than other major European markets, Stephan DuCharme, a LetterOne partner and former DIA board member, said last month. DIA’s stores need modernization and investment, along with a focus on expanding sales rather than prioritizing profit margins, he said at the time.

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