Saudi-based Savola Group said it agreed to pay SR440 million ($117.3 million) to buy all Geant supermarkets owned by Fawaz Alhokair Group, absorbing its second retail competitor since 2008.

Savola has signed an agreement with the Saudi-based Alhokair to buy Geant supermarket outlets in the kingdom, it said in a statement posted on the bourse website on Saturday.

"We are taking all the Geant stores in the kingdom, they are 11," Savola's chief executive Sami Baroum told Reuters.

The deal will enable Savola's retail arm Azizia Panda to raise to 8 from 7 per cent its share of the Saudi retail market and would increase its turnover by 13 per cent, Savola said.

The cost of the transaction, which Savola said will be self-financed, "does not stretch its finances excessively," said Laurent-Patrick Gally of the Dubai-based Shuaa Capital.

"Savola had SR660 million in cash at the end of the second quarter of 2009 and 4.9 billion riyals in gross debt," said Gally, who noted that Savola's 27.9 per cent stake in dairy firm Almarai was worth SR4.67 billion.

The acquisition would add about SR1 billion to Panda Azizia's turnover, Gally said. The deal gives Alhokair, a retail group and commercial malls developer, the option to buy a 10 per cent stake in Azizia Panda three years after the signing of the agreement.

"Alhokair is a major retail player with long experience in the development of malls and fashion retail. We want to benefit from this experience," Baroum said. "Whether he agrees to buy the 10 per cent or not, Geant stores will remain with us".

Baroum later told Al-Arabiya television the 10 per cent stake in Azizia would cost Alhokair SR340 million.

Shares jump

After the announcement, Savola shares closed at their highest level since June 6 while shares in fashion retailer Fawaz Abdulaziz Alhokair and Company gained 5.3 per cent. Fawaz Alhokair Group is a key shareholder in Fawaz Abdulaziz Alhokair and Company.

Savola hopes within five years Azizia Panda would take a 10 per cent share of the 96 billion riyals generated in annual sales by the Saudi retail market.

"Organic growth will be the way forward for Azizia to get to 10 per cent market share. I don't see at this point prospects for new acquisitions," Baroum said.

Shuaa's Gally said Geant operations will probably need some fixing. "We believe Savola is capable of turning them around," he said, noting Azizia Panda currently makes a net margin of 2 per cent on turnover against less than 1 per cent in 2007.

Azizia, 80-per cent owned by Savola, plans to have 120 stores by the end of 2010, double its level in 2008.

The deal with Alhokair is Azizia Panda's second acquisition in two years. In February 2008, Azizia announced the purchase of Giant Stores from private Saudi conglomerate Al-Muhaidib Group under a share swap deal.

Fawaz Alhokair Group teamed up in 2004 with France's Casino to bring the Geant supermarket brand to Saudi Arabia. Azizia Panda competes with France's Carrefour and the local Abdullah Al-Othaim Markets Company-Reuters