Something is rotten in the chain of DIA – Mikhail Fridman’s retail asset in #Spain faces more claims

In the last week of June, Spanish publications reported that after a year under the ownership of Mikhail Fridman, the relationships between DIA and its franchisees have not only not improved, but worsened.

Fridman's relationship with franchisees continues along the same lines as his predecessors. The Asociación de Afectados por Franquicias de Supermercados reports that “The current managers want to remove franchisees” and will start with "cutting franchises in half”. For that, the Association notes, they are using such tactics as not paying the franchisees their corresponding margins and not compensating for offers, so “the tactic is to try to save the company at the expense of the franchisees”, they conclude.

Mikhail Fridman

DIA franchisees continue to file complaints against the managers of the supermarket chain. The bankrupt franchisees denounce the business scheme to which the chain submits them, for reasons of “abusive treatment”. Their stories repeat themselves. Those affected refer to the "arbitrary and unjustified" modifications of the contractual conditions, the "imposed obligations" and problems with supplies. Earlier this year, on May 20 Stephan Ducharme, a long-term ally and Managing Partner of Fridman’s L1 investment group, took the position of DIA’s CEO. His predecessor Kart-Heinz Holland was appointed right after DIA’s final takeover by Fridman’s L1, and left after serving a year in the position – for that year he has received the farewell reward of EUR 2 million.

The new management claimed that the reward was adequate to the successful completion of the first phase of the company's restructuring Holland had performed. However, the chain’s suppliers disagree with that high praise after some of them have received invoices with atypical charges not included into their agreements with DIA. Late payments have become fashionable with DIA again, they complain, as well as poor quality incidents.

As for the DIA's market share, due to the Covid-19 pandemic, it jumped to 6.6% from 6.1% in the first two months of the year. Yet after self-isolation was over, the share deflated like a balloon, stopping at 5.9%, that is, below the February indicators.

“The smallest and closest supermarkets were the ones that grew the most”, explains Florencio García, Iberia Retail & Petrol Sector Director of Kantar. “Mercadona and Lidl were the ones that lost the most customers because of distanced locations, while DIA has a lot on small close-by shops. Everything seemed to be in DIA’s favour but they failed”. The chain was not able to meet the obligations on online orders so bad that Ricardo Álvarez, CEO of DIA Spain, had to step forward and publicly apologize.

Now that customers can return to the pre-pandemic shopping habits, many have turned their backs on Fridman's company. The ongoing anticorruption prosecution in regard to Mikhail Fridman's alleged criminal actions in Spain is not helping DIA’s market position either.

Spain’s High Court is investigating allegations that Fridman acted to depress the share price of DIA when trying to take control of the supermarket chain. Spain’s Supreme Court gave the High Court a mandate to investigate anonymous accusations which it said indicated Fridman may have acted to manipulate prices, engaged in insider trading and damaged the interests of minority shareholders.

The court document cites a police report alleging that Fridman acted in a coordinated and concerted way through a network of corporations to create short-term illiquidity in the company and lower the share price before launching his takeover.

“According to the accusation, LetterOne Investment Holdings (directed by Fridman), shareholder in DIA, maintained a heightened financial tension to lower the share price before buying the company,” said the court document.

Fridman appeared in court in Madrid in October 2019 and denied all charges. It should be noted though, that the hearing was part of a separate case, in which judges are investigating the bankruptcy of digital entertainment firm Zed Worldwide that Fridman allegedly orchestrated. The judge in the case ruled in September that there were indications Mr Fridman exercised control over people and entities that damaged ZWW.

In a submission to the court, prosecutor José Grinda González described the alleged attack on ZWW as a “raid”, noting that “the word ‘raider’ is used in the realm of organised Russian crime to describe the theft of a business. Either through violence, killing or economic strangulation.”  In his August submission Mr Grinda cited allegations by Mr Pérez Dolset “that he had received intimidating messages pushing him to . . . cede the company to LetterOne, that someone had left a note on the windscreen of his vehicle in which they threatened his children directly.”

Many in the West would think that the Spanish prosecutor got carried away with these accusations, but in Moscow the DIA and Zed acquisitions tactics seem familiar and unsurprising.  “Fridman and his partners . . . are all but the only Russian billionaires building big new businesses in the west — which is all the more interesting since their investment ideas and corporate wars are so reminiscent of Alfa’s Russian past,” business site the Bell wrote.

Similarly, the FT reported that “after setting up Alfa Group during perestroika with two Moscow university classmates, Mr Fridman quickly earned a reputation as a boardroom bruiser unafraid to take on even the likes of BP, whose then-chief executive John Browne watched aghast as Siberian courts signed over oilfields to Alfa’s oil producer TNK for pennies on the dollar. A merger with BP’s Russian operations turned into Russia’s most epic corporate war of the Putin era; eventually, TNK-BP chief Bob Dudley fled Russia amid complaints of “sustained harassment”, police raids, and poisoning allegations.”

The parallels may be obvious, but it should be kept in mind that despite the menacing reputation both in Russia and abroad, no conviction ever fell on Fridman himself, or his nearest circle. The outcome of the Spain’s High Court investigation remains to be seen.

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