Megafon close to buying 50% stake in Euroset - paper
MOSCOW. Sept 4 (Interfax) - Megafon , one of Russia's leading mobile phone service providers, is close to completing lengthy negotiations to buy a 50% stake in Euroset , the country's largest mobile phone retailer.
The shares would be bought from businessman Alexander Mamut, who owns 50.1% of Euroset. As a result of the deal, Megafon and rival operator Vimpelcom , which now owns 49.9% of Euroset, would each own 50% of the retailer.
Negotiations between Megafon and Mamut are in the final stages, Kommersant reported on Tuesday, citing sources close to the companies involved in the deal. Megafon's board of directors will consider the acquisition of the Euroset stake this Friday, the paper said. Megafon earlier announced that a board meeting would be held on September 7 and the agenda would include the issue of determining the price of an interested-party transaction, but did not provide details.
The valuation of Euroset is still a subject of negotiations. One source cited by Kommersant said the retailer could be valued for the deal at $2.5 billion-$2.7 billion including debt (gross debt is 10 billion rubles, and net debt is 5.5 billion rubles). Consequently, the price of the stake being sold by Mamut could be $1.25 billion-$1.35 billion.
Earlier this year, the issue of the price already moved Megafon to question the wisdom of the deal. A source familiar with the talks told Interfax in June that the operator might decline to buy the Euroset stake because it is not happy with the price sought by Mamut.
The deal might not be for cash, and the final price will depend on the valuation of the assets used as payment, Kommersant reported. The paper, citing its sources, reported at the beginning of this year that in return for the Euroset stake Mamut could get 100% of SUP Media, which he now jointly owns with Kommersant Publishing House and company management. Kommersant Publishing Housing, like Megafon, is controlled by billionaire Alisher Usmanov.
Under the deal that is in the works, Vimpelcom might buy 0.1% of Euroset shares from Mamut, increasing its stake to 50%. Mamut would sell the other 50% of the retailer to Megafon and a company controlled by Usmanov, USM Advisors (a unit of the USM holding company), Kommersant reported, citing sources close to Euroset and Megafon.
Vimpelcom, as the second principal shareholder of Euroset, has preemptive rights to buy shares if they are sold. Vimpelcom head Anton Kudryashov said in May that the operator is potentially interested in controlling Euroset and increasing the size of its stake, but the question is at what price. Vimpelcom has already had an opportunity to increase its stake in the retailer, as it had an option to buy out a 24.95% stake from Mamut. The option expired in January without Vimpelcom exercising it.
Kudryashov said in August that Vimpelcom is generally happy with its collaboration with Euroset, but that it plans to focus on construction if its own retail outlets (the number of which is supposed to double to 400 by the end of the year) and is considering working with rival retailer Svyaznoy. Kudryashov expressed concerns that in the past three months Euroset had stopped fulfilling its obligations under an agreement to build monobrand stores that was signed in March 2011. Under the agreement, the retailer pledged to open 1,000 outlets under Vimpelcom's Beeline brand by September 2012, but had actually opened only 530, he said.
Kudryashov also said that a three-year development strategy for Euroset that would resolve the issue of the company's dividend policy, among other things, would be drafted and approved soon.
Euroset, with 4,700 outlets, had a 32% share of the Russian mobile phone market by units sold at the end of 2011. It nearest rival, Svyaznoy had a share of about 24%.
Megafon's interest in buying a stake in Euroset has been known on the market for a long time. National telecommunications company Rostelecom also held negotiations to buy a stake in the retailer. One option that was discussed was for Megafon and Rostelecom to buy Mamut's stake together. Kommersant reported that Sberbank was also interested in Euroset.
Mamut planned to dispose of part of his stake in Euroset in the spring of 2011 in the course of the retailer's planned IPO. Mamut and Euroset together were prepared to sell up to 43.9% of shares in the retailer on the LSE, which would have reduced the businessman's stake to 8.6%. The company was valued at $2.7 billion-$3.3 billion for the IPO, but the offering was called off due to weak demand from investors (the bid book for Euroset shares was only 10-15% filled).