M.video buys Eldorado for 45.5 billion rubles

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M.video

Retailers of home appliances and electronics “M.video” and “Eldorado”, which are part of the group “Safmar” of billionaire Mikhail Gutseriev, merge.

“M.video” will buy “Eldorado” for 45.5 billion rubles. The united company will join the list of world leaders in electronics sales. By 2022, its turnover should reach about 450 billion rubles (roughly 8 billion US dollars).

The company convokes an extraordinary meeting at which shareholders must approve the terms of purchase of “Eldorado”. The transaction amount will amount to 45.5 billion rubles excluding Eldorado’s debt. Shares buyback will be held before May 28th, the shareholder meeting will be held on April 13th. The buyer is “M.video Management” LLC which is a subsidiary structure of “M.video”.

The buyer will finance the deal by raising a loan and own funds, as noted in “M.video” statement. Finance Director of “M.video” Ekaterina Sokolova talked about the fact that the loan is taken at VTB. According to her, as part of the transaction, the commpany will pledge the shares of the subsidiary company “M.video Management”, and “Eldorado”, as well as retailers’ trademarks.

“As part of the deal, “M.video Management” LLC will raise a loan in the amount of about 40 billion rubles and use its own available funds. The loan portfolio of the united company after the completion of the transaction is expected to be at 47 billion rubles,” the press-release says.

It is expected that the net debt to EBITDA of the united company will be 1.5 x by the end of 2018.

“M.video” is aimed at the systematic reduction of the debt burden due to the observance of high financial discipline and increased cash flow of the united business and reduction of the ratio of net debt to EBITDA by the end of 2020 to 0.5 x”, — the retailer reports.

“We implement one of the largest transactions in the Russian retail and create a high—performance player in the consumer electronics market, “said the head of the Board of Directors of M.video said Gutseriev.

He noted that the group will retain both brands, which will allow it to compete successfully with Russian and foreign players in the traditional retail and online segment. It is expected that the revenue of the united company by 2022 will exceed 450 billion rubles, according to M.video.

“The deal allows the group to become one of the largest public companies in its sector and, by increasing EBITDA margin to more than 6%, to enter the top three players in the world market of home appliances and electronics in terms of efficiency, whose shares are traded on the stock exchange,” M.vdeo representative said.

If the transaction is approved by the shareholders, it is expected to close in the second quarter of 2018. By January 1, 2019, the company will switch to a new legal entity.

The combined company will be managed by team led by founder and President of “M.video” Alexander Tynkovan and chief Executive Officer Enrique Fernandes. The latter will lead the operations of both companies. Tynkovan said that the deal will not require the approval of the FAS.

Management will focus “on the process of integration and creation of one of the leading players in the electronics market in the world on the basis of “M.video” ” the report said.

Minority shareholders who disagree with the transaction or do not participate in the voting have the right to present their shares for redemption. The repurchase price will be 401 rubles per share (below their current market value). According to the report, this amount corresponds to a “fair market assessment based on discounted cash flows conducted by a “big four”auditor. Claims for the redemption of shares must be submitted by the shareholders within 45 days from the date of the shareholder meeting.

“M.video” representatives also said that the retailer plans to return to the practice of paying dividends after integration of “Eldorado”, this can be considered in 1.5 years.

“M.video” is the largest retail chain selling electronics and household appliances in Russia. As of the end of 2017, it included 424 stores in 169 cities. Their total area was 937 thousand sq.meters (sales floor area — 693 thousand sq.meters). It is controlled by “Safmar” group: 57% stake. This package was purchased from the founder of M.video Alexander Tynkovan and his partners in the spring of 2017.

As of the end of 2017 – 9.4% of “M.video” shares belong to NPF “Future” (pension fund), another 5.8% — NPF “Trust” (pension fund which also part of Safmar). Revenue in 2017 amounted to 198.2 billion, net profit of 6.95 billion, with EBITDA of 11.79 billion.

“Eldorado” also belongs to “Safmar” group. The network has 400 stores in 200 cities of the Russian Federation. The company “Eldorado” was purchaed by the group a little earlier — in December 2016.

At the end of 2016 PPF Group N.V. and EMMA Capital sold 100% of shares of one of Russia’s largest retailers of electronics and home appliances “Eldorado” to a group of investors associated with “Safmar”. FAS approved the deal, but its terms have not been disclosed.

In April 2017 Safmar group bought 57.7% of shares of “M.video” from Mr. Tynkovan and partners. Then it reported about the plans of Safmar to rename M.video to Safmar Retail and create a management company on its basis, which will include the Eldorado group.

It should be noted that at the end of 2016 Safmar first agreed to purchase Eldorado retailer from Czech PPF and EMMA Capital companies, and a week later – to purchase 57.7% M.video from its founder and current President Alexander Tynkovan, as well as Pavel Breev and Mikhail Tynkovan.

The whole of “M.video” was then estimated at about $ 1.26 billion for the transaction with “Safmar”, however the sellers of the controlling stake received just about $726 million.

The parties did not disclose the terms of the transaction with Eldorado; some sources say the estimated value of Eldorado’s business taking into account its debt at the time of the transaction is at 26 billion rubles.

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