Gem Capital may buy 80% of owner of brands Zarina and befree for nearly 500 mln euros - source

MOSCOW. May 18 (Interfax) - The new contender for the fashion retailer Melon Fashion Group (MFG), which manages Zarina, befree, Love Republic and Sela retail chains and in which Russia's Sistema Holdings was making a deal to purchase a large stake which fell through, is an investment company from ex-Gazprom Anatoly Paliy's Gem Capital.

A market source told Interfax that Gem Capital received permission from Russian authorities to acquire just over 80% of the shares of Melon Fashion Group for about 500 million euros, which implies a valuation of the entire company at about 600 million euros.

Technically, the deal will consist of two stages, the source said. First, the Cypriot I.G.M. Manufactrust Ltd. belonging to MFG. co-founder David Kellerman is buying out stakes in the retailer from Sweden's Eastnine AG and MFG Intressenter, as well as from minority foreign shareholders, increasing its stake in the company from around 34% to around 82%. Then, Russian Gem Capital will acquire the whole package from I.G.M. Manufactrust, while the authorities have ordered part of the payment to be spread over several months in order to spread out the purchase of foreign currency on the market over the same period, the source said.

Eastnine, which owns about 36% of MFG, announced the cancelation of a planned IPO amid dramatic events in the Russian financial market in March 2022; and of understandings reached with AFK Sistema in October. The plan was for Sistema to buy a stake in Eastnine for 193 million euros, the investment fund said at the time. In total, AFK had reached an agreement with the owners of 47.7% of MFG. Sistema intended to spend 15.8 billion rubles on their acquisition. Sistema was prepared to but the remaining 52.3% of the group at the same price per share, and the consolidation of the entire asset could have cost Sistema about 33 billion rubles.

However, the deal never took place: in March this year, Sistema said it had been called off by mutual consent. Eastnine said that it still intended to offload the Russian asset and was still in dialogue with potential buyers to sell its stake.

The parties did not give specific reasons for the collapse of the deal. Kommersant, citing sources, reported that Sistema walked away from the acquisition after failing to agree to buy out other co-owners in order to consolidate most of the retailer's business.

Sistema did not comment when asked whether it might revisit the MFG acquisition once the bulk of the shares is concentrated in one pair of hands.

Eastnine did not respond to Interfax's request for comment.

JSC Melon Fashion Group boosted sales revenue 23.5% in 2022 to 46.1 billion rubles. Net profit increased 2.2-fold to 7.3 billion rubles. The general director of the company is Mikhail Urzhumtsev, who is also a minority shareholder in MFG with a 7.05% stake.

Gem Capital deals in both direct and venture capital investments. It made its name in 2020 after buying Volga Gas, a public company at the time, while gaming, entertainment, nanotechnology and real estate assets ate currently central to the Gem Capital portfolio.

The investment company's press service and managing director Alexander Bykhovsky did not respond to Interfax's request either.