Future Retail, Shoppers Stop shares rise on $100 million Hypercity deal

MUMBAI (Reuters) - Shares in Indian retailer Shoppers Stop rose nearly 9 percent to a three-year high on Friday, a day after it agreed to sell its supermarket chain Hypercity to domestic rival Future Retail for 6.55 billion rupees ($100.42 million).

The deal also sent shares of Future Retail sharply higher, as investors bet it would improve its growth prospects as Indian shoppers increasingly switch from buying groceries at mom-and-pop stores to bigger supermarkets such as Hypercity.

In a deal announced late Thursday, the companies said Future Retail is buying a 100 percent stake in Hypercity by purchasing Shoppers Stop's 51.09 percent shareholding and the remainder from real estate developer K. Raheja and related companies.

Analysts said selling off its supermarket chain would allow Shoppers Stop to focus on its core department store business and cut debt levels, while Future Retail, which operates the Big Bazaar supermarket chain, will be able to expand its store count in the country to more than 900.

"We expect the deal to be a win‐win proposition for both players," said Edelweiss in a note to clients.

Shoppers Stop shares were up 1.1 percent at 0940 GMT, after earlier rising as much as 8.7 percent to their highest since October 2014. Future Retail shares were up 2 percent after earlier rising as much as 6.1 percent.

The cash-and-stock deal includes 1.55 billion rupees in cash and 5 billion rupees worth of shares with the remainder being debt.

The deal is expected to close in three to five months, the companies said.

Shoppers Stop also received a boost last month when an affiliate of Amazon.com agreed to buy a 1.79 billion rupee stake in the Indian retailer.

"We believe, Shoppers Stop Ltd is in a sweet spot," said Edelweiss in its note to clients.

($1 = 65.2600 Indian rupees)

(Reporting by Swati Bhat; Editing by Sunil Nair)