The German MediaMarktSaturn will buy a 15 percent stake in the Russian retail network M.video from Safmar group, the German company said in a statement. This information was confirmed by the representative of Safmar.
For a share in the “M.video” MediaMarktSaturn will pay “Safmar” €258 million. The purchase price may be reduced by € 86 million depending on the achievement of established indicators of EBITDA in 2018 and 2019 and tax deduction, the report says. Now Safmar owns 57.7% of shares of PJSC M.video, the remaining 42.3% is in free circulation.
Investors reacted calmly to the deal during the day, the securities of both companies were trading both in the plus and in the minus. By the end of trading day on the Moscow Stock Exchange the shares of M.video fell by 1%, Ceconomy Group (owner of MediaMarkt) securities on the Frankfurt stock exchange rose by 2.5%.
The deal should increase earnings per share of Ceconomy Group by about 10%, as the company earns dividends from its subsidiaries. Shareholders of “M.video” will benefit from MediaMarktSaturn joining the company as professional minority stakeholder.
The largest retailer of household appliances and electronics in Europe MediaMarkt manages 800 stores in 14 countries. The managing company of MediaMarkt (Ceconomy Group) also owns Saturn CE retailer, analytical company Retail Media Group, iBood and LocaFox online stores, Juke streaming service, and consulting company Deutsche Technikberatung. The Ceconomy Group, whose revenue in the 2016/17 fiscal year was €22.2 billion, is the second largest player in the global market after the american Best Buy. Revenue MediaMarkt in Russia in 2016/17 fiscal year amounted to €526 million. EBITDA was negative and amounted to minus €14 million.
At the end of last year, the revenue of M.video amounted to 198 billion rubles, “Eldorado” — 106 billion rubles. Together they occupy the tenth place among the retailers of household appliances and electronics by revenue in the World. The share of MediaMarkt in the Russian CE market in 2017 was 3%, M.video together with Eldorado — 25.9%
Under the deal, the financial-industrial group of Mikhail Gutseriev will also receive the Russian division of the MediaMarkt (42 store MediaMarkt and 90 corners MediaMarkt located in hypermarkets Metro Cash&Carry.) But Safmar will sell these stores to M.video which it owns. This part of the transaction, as said during a meeting of the shareholders to investors by the President of “M.video” Alexander Tynkovan, Safmar will receive 10,7 billion roubles, or €134 million. It will be financed by own means of the retailer and at the expense of Bank credit, he added.
This transaction will be the second case when M.video buys assets from its owner Safmar. In April 2018, “M.video” has closed a deal to buy “Eldorado” from Safmar for RUB 45.5 billion excluding debt. For the transaction “M.video” has attracted a loan in the amount of RUB 40 billion from VTB bank under the collateral of 100% of shares of “M.video Management” company that manages M.video stores. It is because of this transaction “M.video” for the first time in its 25-year history received a significant debt load.
The amount of credit that the company will attract to buy MediaMarkt, “M.video” does not disclose. The total debt load of the network by the end of 2018 will be 55 billion rubles. taking into account the transaction with MediaMarkt on conservative estimates, said during the conference call, financial Director of M.video Ekaterina Sokolova. The retailer expects to repay the debt by 2022, as it was planned after the deal with Eldorado, she added.
The deal requires the approval of the Federal Antimonopoly Service and is scheduled to be closed in the third quarter of 2018. The company will not keep the MediaMarkt brand, the stores will be renamed to “M.video” and “Eldorado”. The rebranding will last until mid-2019, the legal consolidation of the companies will be completed by the end of 2019.
The second part of the transaction is more dangerous, as it will increase the debt burden in exchange for an asset that is unprofitable in its current form. But MediaMarkt will enter into a deal without its debt obligations, said the representative of “M.video”. “M.video” plans to “significantly improve the economic model of the purchased stores” and expects to receive additional revenue from the network up to 110 billion rubles and 11 billion rubles EBITDA for four years from 2019 to 2022, the company said in a statement. “In fact, we are increasing the pool of top stores of the network,” Tynkovan explained.
MediaMarkt entered the Russian market in 2006, but almost immediately faced with problems. At first, the retailer had to give up its traditional red and white colors shortly before entering the Russian market (these colors were adopted (“repainted”) by “Eldorado”). The Germans had to develop in Russia white and magenta color design. “Eldorado was well aware of the MediaMarkt concept, as it was its main potential competitor. The Russian network “Eldorado” just struck a preemptive blow and forced this giant, who never changed anything, to move, ” explained then the market participants.
Then the Russian companies, including the networks “M.video”, “Eldorado”, “Technosila”, “Mir”, “Euroset”, accused MediaMarkt of positioning itself as a discounter and of dumping prices. The formal reason was the retailer’s advertising campaign for the sale of Panasonic TVs at a price of 50% cheaper than in Russian networks. The conflict reached the point that Russian companies threatened to refuse to work those suppliers who provided the Germans with more favorable conditions for the purchase of equipment. The collective boycott eventually forced the vendors to refuse to work with MediaMarkt or equalize the conditions.
The German retailer failed to win a significant market share from Russian competitors, and in 2010 MediaMarkt started thinking about changing the development strategy in Russia — from organic growth to the possible purchase of one of the market leaders. Then it became known about the preliminary talks between MediaMarkt and” M.video”, but the deal never took place.
After the devaluation of the ruble in 2014, MediaMarkt began to reduce the network of its hypermarkets. In 2016-2017, the Media Markt network in Russia decreased to 57 stores, by June 2018-to 42. It is the optimization of investments and operating costs for the opening of stores, according to market participants, pushed the retailer in 2017 to an unususal step – the opening of specialized corner-stores in Metro Cash & Carry markets. Safmar has yet to assess the effectiveness of these points. The main interest in the framework of integration with “M.video” are individual stores.