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Germany's Ceconomy to Swap Russian Business For M.video Stake

By Steve Wynne-Jones
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Germany's Ceconomy to Swap Russian Business For M.video Stake

German consumer electronics retailer Ceconomy has agreed to swap its Russian business and cash for a 15% stake in M.video, a unit of Russia's Safmar, it said on Wednesday.

The deal allows Ceconomy to unload its loss-making Russian business, take a share in the market leader, and avoid the cost of a full exit from the Russian market.

The German company will pay €258 million in cash at current exchange rates but that figure could decline by as much as €86 million euros if M.video falls short of agreed operating profit targets this year and next, it said.

Ceconomy took a step back from initial plans to launch a capital increase to finance the transaction, however, after news of a possible share sale pushed its shares down by more than 10% on Tuesday.

"We have made no decision on a capital increase yet," Chief Executive Pieter Haas told journalists on a conference call.

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Shares in Ceconomy on Wednesday were up 3.9% to €7.79 by 0851 GMT. Shares in M.video, which has a market value of 74.9 billion roubles ($1.18 billion), were up 0.2% at 414.9 roubles.

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M.video recently merged with Eldorado, which is also owned by Safmar, to become Russia's leading electronics and consumer appliances retailer with a combined market share of nearly 26%.

That compares with just 3.3% for Ceconomy's MediaMarkt business in Russia, which saw its sales fall by 7% to €526 million in the 2016/17 financial year.

Ceconomy CEO Haas said that M.video had no plans to close Ceconomy's 46 MediaMarkt stores which will be operated under either the M.video or Eldorado brand.

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M.video will pay parent Safmar $170 million for the MediaMarkt stores once Safmar completes the acquisition of Ceconomy's Russian business, Ceconomy said, confirming a report by Reuters.

Safmar is controlled by the family of oil-to-real estate tycoon Mikhail Gutseriev.

Ceconomy, which operates consumer electronics chains Media Markt and Saturn, said the Russian deal would likely have a one-time negative effect of around 250 million euros on its net income.

It also adjusted its 2017/18 earnings guidance to reflect the deconsolidation of the Russian business.

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It now expects its earnings before interest and tax (EBIT) to grow by a low to medium single-digit%age from a year-earlier figure of €498 million.

News by Reuters, edited by ESM. Click subscribe to sign up to ESM: European Supermarket Magazine.

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