Tavrin and Paliy burrow into women’s clothing
Who will develop Zarina, Befree and Sela clothing stores in Russia.
In August, the Swedish Eastnine announced the sale of its stake in Melon Fashion Group to Gem Invest, and soon the FAS approved the sale of up to 75% of the retailer to Ivan Tavrin’s structures. The companies decided to manage the asset together.
The Kismet Capital Group company of the former CEO of MegaFon Ivan Tavrin and Gem Invest LLC Vladimir Paly will create a joint venture to manage the Zarina, Befree, Love Republic and Sela networks. RBC was told about this by two sources close to the deal.
The largest owner of Melon Fashion Group, according to the company’s report for 2022, was the Swedish Eastnine AB – it owned 36% of the company. Another 34% was held by IGM Manufatrust Ltd, the head of the board of directors of the group, David Kellerman. The owner of 11% was the Swedish MFG Intressenter AB (subsidiary of East Capital Holding AB), 7% – from the CEO of MFG Mikhail Urzhumtsev, 12% of the company belong to other Russian and Swedish shareholders.
The structure and terms of the buyout will look like this:
At the first stage, Gem Invest will consolidate 89.9% of MFG JSC by buying large blocks of shares from foreign shareholders and partially from minority shareholders. Eastnine, East Capital and David Kellerman (heads of the board of directors of the retailer) will completely withdraw from the asset, and the share of Melon Fashion Group management and other minority shareholders will decrease – together they will own 10.1% of MFG JSC.
At the second stage, Gem Invest and Kismet Capital Group agreed to create a joint venture based on the repurchased shares, the shares and investments in which will be distributed 50/50. Such a structure of the transaction, according to RBC’s interlocutor, corresponds to “commercial agreements”, since both investors showed interest in the asset.
The amount of the deal is not disclosed by the parties. The agreements do not provide for foreign owners leaving the Melon Fashion Group to have an option to buy back.
The deal will include all brands managed by Melon Fasion Group. Top management will continue to manage the company, new investors plan to assist the management to the maximum in implementing the strategy in the interests of all shareholders.
The parties have received all the necessary approvals from government agencies, the transaction will be completed in the near future.
Kismet Capital Group declined to comment. RBC sent a request to the press service of Melon Fashion Group, as well as representatives of Gem Invest, Eastnine and East Capital.
What is Melon Fashion Group known for?
Melon Fashion Group was established in 2005 as a result of the reorganization of a retail business that has existed since 1993. The company is one of the largest Russian fashion retailers: it owns four brands – Zarina, Befree, Love Republic and Sela. In 2022, the retailer operated in five countries and operated more than 860 stores in 174 cities. Melon Fashion Group’s revenue in 2022, according to its report, reached 46 billion rubles. (growth by 23% year-on-year), net profit – 7.8 billion rubles. (+121%).
How foreigners sold Melon Fashion Group
The intention of the Swedish companies Eastnine and East Capital, as well as a number of private investors, to sell their shares in the Russian fashion retailer became known back in October 2022. Then about the redemption of their share of 47.7% for 15.8 billion rubles. AFK Sistema agreed (the entire business of the retailer was valued at about 33.1 billion rubles). But this deal did not take place: in March 2023 it became known that the agreement was terminated by mutual decision of the parties. The reasons for the failure of the deal were not disclosed then, but, according to Kommersant’s sources, this happened due to the impossibility of consolidating the controlling stake of the retailer by the Russian company: the key top managers of Melon Fashion Group, who were not ready to part with their shares, resisted the buyout of shares. Eastnine then announced that it would continue to seek buyers to exit the Melon Fashion Group.
In early August, the owner of the largest stake in the Russian fashion retailer, Swedish Eastnine, announced that it had signed an agreement to sell its 36% stake in Melon Fashion Group to Gem Invest. The only founder of Gem Invest, according to the Unified State Register of Legal Entities, is Vladimir Paliy, the namesake of the owner of Gem Capital Holdings (owned by Anatoly Paliy, who previously held senior positions in Gazprom structures). Earlier, the media reported on Anatoly Paliy’s interest in the asset: in May, Interfax wrote, citing a source, that Gem Capital Holdings received permission from the Russian authorities to acquire a little more than 80% of the shares of Melon Fashion Group JSC. Eastnine has valued its stake in the clothing retailer at RUB 15.6 billion, which corresponds to approximately €149 million at an exchange rate of RUB 105. It was planned to close the deal within two weeks.
But soon after that, it became known about another contender for this asset. On August 10, the Federal Antimonopoly Service (FAS) announced in its telegram channel that it had approved the application of Radio Reklama NN LLC to acquire the retail chains Zarina, Befree, Love Republic and Sela. The message said that the advertising agency plans to acquire up to 75% of the shares of MFG Invest JSC (Melon Fashion Group manages these chains of stores), as well as the right to control the activities of Melon Fashion Group JSC and Taxi.Style LLC.
The beneficiary of Radio Reklama NN LLC is Ivan Tavrin’s Kismet Capital Group. The entrepreneur is known as the owner of telecommunications, media and advertising assets. In 2012-2016, Tavrin headed the MegaFon mobile operator. In early 2014, Tavrin acquired 12% of this social network from the founder of VKontakte, Pavel Durov. A few months later, he sold this package to Mail.ru Group, thanks to which the latter gained control over the social network. In the fall of 2022, Kismet agreed to buy the Avito ad service for RUB 151 billion. – less than the amount at which the company was estimated by analysts before the start of a special military operation in Ukraine (500-600 billion rubles). And in January 2023, Kismet Capital Group became the owner of more than 20% of the parent company of the HeadHunter recruitment platform. Kismet’s other major assets include a 66% stake in First Tower Company (PBK), which owns towers to house cellular communications equipment.
How much could Melon Fashion Group be sold for?
Based on the amount of 15.6 billion rubles, for which in early August Eastnine agreed to sell its 36% stake in Melon Fashion Group, it can be assumed that the value of 100% Melon Fashion Group at that time could be about 43 billion rubles, and the share in 89.9% – about 39 billion rubles.
The market multiplier for retail transactions is 5-6xEBITDA, including rental costs, investment banker Ilya Shumov points out. According to Melon Fashion Group’s annual report, the company’s EBITDA excluding the effect of IFRS 16 Leases (assuming accounting for leases through the recognition of new assets and liabilities on the balance sheet and accounting for lease payments through depreciation and interest expenses) in 2022 is estimated at about 11 billion rubles, says Shumov. According to his calculations, the potential value of Melon Fashion Group’s business is 55–66 billion rubles, and given the large cash reserve on the company’s balance sheet (estimated at about 14 billion rubles) and the absence of obligations on loans and borrowings, an estimate of the value of 100% shares is 69–80 billion rubles. Thus, with a 50% discount to the transaction price following the decision of the governing commission, the final price for 100% of the shares could be 35-40 billion rubles, and the price for 89.9%, respectively, 32-36 billion rubles, concludes Ilya Shumov.
