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Last updated: December 7, 2012 8:02 pm
Megafon will acquire the stake with its controlling shareholder Alisher Usmanov’s offshore vehicle, Garsdale Services Investment. After one year, Garsdale will sell its 25 per cent stake in Euroset to Megafon.
The deal values Euroset at $2.3bn including net debt, a smaller figure than the $3bn valuation the company sought when it tried unsuccessfully to float in London in April last year.
Megafon and Garsdale have promised to pay an additional $100m for the 50 per cent stake – owned by the oligarch Alexander Mamut – if Euroset meets performance targets.
Megafon said it planned to buy the 25 per cent stake from Garsdale for $535m plus 8 per cent interest a year. It added that the second transaction could be postponed for an additional two years if necessary.
The Euroset deal comes a week after Megafon’s $1.7bn London-Moscow initial public offering and despite concerns that Russia’s anti-monopoly regulator might block the deal.
When the transaction is complete, Euroset will be co-owned by two of Russia’s big three mobile operators: the number two Megafon and number three VimpelCom
While Megafon operates 3,750 of its own stores and franchisee shops, the deal will give it access to 5,500 stores in Russia and Belarus, positioning it to start challenging MTS for the number one spot.
The sale of Mr Mamut’s stake to Megafon marks the end of the oligarch’s four-year stint as a big shareholder of the company.
Mr Mamut – owner of Waterstones bookshops in the UK – bought Euroset in September 2008 from the company’s founder Yevgeny Chichvarkin, an eccentric entrepreneur who came to define a new generation of Russian businessmen.
While Mr Chichvarkin had been eyeing a sale, the transaction was sped up when Russian prosecutors began investigating him on charges of kidnapping and extortion – a case that was later dropped – prompting Mr Chichvarkin to flee to London.
A few weeks later, Mr Mamut sold 50 per cent of Euroset to VimpelCom. But over the past few years, he has had a harder time selling the remaining stake, with the London IPO and a number of proposed private transactions reportedly falling through.
Megafon said it believed the deal with Euroset could produce synergies between the two companies and help reduce churn in the market – a result of the three players constantly pushing prices lower for new Sim cards, rather than working on getting their own subscribers to upgrade to plans with more offerings and higher data spending.
Ivan Tavrin, Megafon’s chief executive, said the operator planned to use Euroset’s outlets to launch a more aggressive promotion of the Megafon brand. “Naturally, we are planning to expand our co-operation with Euroset and make its services even more available to our clients,” he said.
Megafon’s shares closed down 0.2 per cent in Moscow on Friday.
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