Who will dress Yevtushenkov’s “System”
Russian wealthy businessman Vladimir Yevtushenkov could not complete the purchase of the retailer Melon Fashion Group.
As per a correspondent, AFK Sistema, wealthy businessman Vladimir Yevtushenkov, cancelled the agreement to buy clothing retailer Melon Fashion Group (MFG; brands Zarina, befree, Love Republic and Sela), which was made with the owner of the business, the Swedish company Eastnine.
The reasons for ending the agreement were not disclosed. It was finalized in October last year: Sistema was planning to acquire 47.7% of the shares, purchasing them not only from Eastnine, but also from other co-owners – East Capital Holding AB and a group of private investors. The potential transaction amount was also mentioned – 15.8 billion rubles.
This is a substantial asset that would have enabled Vladimir Yevtushenkov to establish a presence in the clothing retail sector. By the end of 2021, the Melon group had 845 stores in 181 cities in Russia, as well as Kazakhstan, Armenia, and Belarus. Melon Fashion Group's 2021 revenue grew by 49% to 37.5 billion rubles, and EBITDA increased by 38% to 8.6 billion rubles.
Then the president of AFK Sistema, Tagir Sitdekov, guaranteed that the deal was in line with the corporation's investment strategy, which purportedly involves consolidating high-quality assets and seizing opportunities arising during market transformation.
By the latter, he seemingly referred to the withdrawal of several Western companies from Russia, and the desire of major Russian players to purchase their assets at a significant discount. The stumbling block in the failed deal may have been the price – 15 billion rubles against the backdrop of recent revenues of almost 40 billion rubles – a clearly non-market scenario.
It was expected that after the transaction, Sistema would become the largest shareholder of the group. However, there would be more than one “owner” as well: another 40% was to be retained by the chairman of the board of directors of Melon Fashion Group, David Kellermann, and another 6% by CEO Mikhail Urzhumtsev.
The funds that Yevtushenkov could have used to purchase Melon Fashion Group might have been required for other assets targeted by AFK Sistema. Among other things, they expressed interest in acquiring the Volkswagen plant in Kaluga.
However, Yevtushenkov encountered strong competition – the Avilon automobile holding shared a similar aspiration. Ultimately, the latter emerged as the primary contender – the deal to purchase the plant is currently being finalized.
However, Yevtushenkov may not actually have any funds at all. As of the second quarter of 2022, the corporation's total debt exceeded 1 trillion rubles, compared to 871.9 billion rubles at the end of 2021. This indicates that if Yevtushenkov is considering major acquisitions, they probably cannot be achieved without securing additional credit funds.
There are also challenges in major divisions of Sistema, such as the mobile operator MTS. At the end of 2022, the company's net profit declined by almost 50% to 32.6 billion rubles. Furthermore, the majority of Sistema's debt seems to be linked to MTS – as of the end of 2022, the operator's debt stood at 383.7 billion rubles.
It seems that Yevtushenkov and MTS figured out how to rectify the situation, but the antimonopoly authorities did not particularly like it. Last October, the company was found guilty of unreasonably inflating the cost of communication services.
The antimonopoly case against MTS was initiated back in February. The company simply failed to provide evidence of cost increases sufficient to raise tariffs. In August, the company increased the cost for a number of tariffs by an average of 8.4% for the second time in a year; the operator raised prices for other tariff plans in September and October, on average, the cost increased by 9.7%. As a result, on average, prices for MTS services increased by more than 20% over the year.
