Kommersant found out the reasons for the failure of the deal to buy AFK Sistema a stake in the Swedish Eastnine in Melon Fashion Group, which manages the clothing brands Sela, Zarina, Love Republic. AFK pulled out of the acquisition after failing to negotiate a share buyback from other co-owners to consolidate much of the retailer’s business. However, the market believes that the Swedes still have a chance to leave the Russian Federation, as a number of Russian investment funds and large fashion retailers may show interest in the asset.
On Sunday evening, the Swedish investment company Eastnine announced the termination of the agreement on the sale of a stake in Melon Fashion Group (MFG; manages Sela, Zarina, Love Republic) to AFK Sistema, without explaining the reasons. The AFK did not report them either.
However, according to two Kommersant sources in the retail market, the reason for the gap was the impossibility of Sistema consolidating a larger stake in the retailer.
Under the agreement concluded in October 2022, AFK planned to acquire a total 47.7% of MFG from Eastnine, East Capital Holding AB (another Swedish investment company) and a group of private investors. At the same time, it was reported that the transaction amount would be 15.8 billion rubles, and the entire retailer’s business was valued at about 33.1 billion rubles.
In parallel, AFK intended to buy shares from other co-owners of the group in order to consolidate the entire business in its own hands. But this was resisted by key top managers of the company, who were not ready to part with their shares, explains one of Kommersant’s interlocutors. Earlier it was reported that after the exit of Eastnine and East Capital Holding AB from the MFG business, David Kellermann, the chairman of the board of directors of the group, will retain his 40% stake, and Mikhail Urzhumtsev, the CEO, will retain 6%.
On Monday, AFK Sistema, Eastnine, Melon Fashion Group declined to comment.
Melon Fashion Group was founded in 2005 on the basis of the Pervomaiskaya Zarya garment factory in St. Petersburg. According to its own data, at the end of 2022, the group included more than 850 stores in 180 cities of Russia, as well as Kazakhstan, Armenia and Belarus. According to SPARK-Interfax, the revenue of Melon Fashion Group JSC in 2021 increased by 49% year-on-year, to 37.3 billion rubles, net profit doubled, to 3.2 billion rubles.
The desire of AFK “Sistema” to gain control over Melon Fashion Group could be connected with plans to bring the company to an IPO on the Russian stock exchange in the future, Marat Ibragimov, a senior analyst at Gazprombank, believes. “To do this, it is enough to own a controlling stake (50% plus one share. – Kommersant),” the expert adds.
Eastnine says it will now continue to seek new buyers for its MFG shares.
However, this may be complicated just because of the non-controlling stake offered for sale, which does not provide significant advantages in managing the company, Marina Malakhatko, head of the CORE.XP retail department, believes.
Under the current conditions, the circle of potential buyers is expectedly limited – these may be local players, Mr. Ibragimov believes. According to Marina Malakhatko, several players from investment funds or other fashion retailers may show interest in buying a stake in Melon Fashion Group.
According to Marat Ibragimov, when they try again to sell their shares in MFG, Swedish investment funds will focus on the price of 15.8 billion rubles, which was indicated in the agreement with AFK Sistema. Marina Malakhatko also considers this price too high due to a non-controlling stake. She does not rule out that as a result, the Foreign Investment Control Commission, which approves transactions with foreign companies, will require that its value be adjusted with other potential buyers. Marat Ibragimov agrees that the final price will depend on the group’s financial performance in 2022.