FILE PHOTO: A customer walks past a display of coffee machines on sale in a store of Russia’s biggest electrical and white goods retailer M.video in Moscow, Russia, April 15, 2016. REUTERS/Maxim Zmeyev/File Photo
June 19, 2018
By Alexander Hübner, Arno Schuetze and Matthias Inverardi
FRANKFURT/DUESSELDORF (Reuters) – German consumer electronics group Ceconomy <CECG.DE> is expected to strike a deal within days to sell its loss-making Russian business to Safmar and take a 15 percent stake in Safmar’s M.video <MVID.MM>, three people close to the matter said.
The group, which owns retail chain Media-Saturn and which hopes to improve its performance in Russia through taking a stake in fast-growing consumer goods group M.video, is considering a capital increase to finance the transaction and bolster its balance sheet, the people said.
Two of them said it was mulling a capital hike of roughly 10 percent, which would raise around 280 million euros at the company’s current market value.
Ceconomy had no immediate comment.
Its shares fell nearly 11 percent and were down 9.9 percent at 7.79 euros by 0945 GMT.
Ceconomy emerged last year from a split from Metro <B4B.DE>, which is now a food-focused retailer. Ceconomy retains a 10 percent stake in Metro, which has lost a third of its value this year as its Russia business has weighed on earnings.
The Kellerhals family, which holds a minority stake in Media-Saturn and has been at odds with the management of Ceconomy and Metro, has so far refused to sign off on profit transfers from Media-Saturn to Ceconomy, which has limited its access to cash to pay for the Russia deal.
Russia’s top two electrical goods and home appliances retailers — M.video and Eldorado — are preparing to merge, and Ceconomy said in January it was seeking a “strategic answer” to its poorly performing Russian business by the end of 2018.
If a deal is concluded, Media-Saturn would pay about 258 million euros ($299 mln) for the M.Video stake based on current exchange rates, although that could be cut depending on financial performance, Ceconomy had said in a statement earlier this month.
It had said that the transaction would entirely eliminate the operational losses of Media-Saturn’s Russian business, but have a one-time hit to Ceconomy’s net profit for the 2017/18 financial year of more than 100 million euros.
In April, Reuters was first to report that Media-Saturn was in talks with M.video about disposing of its Russian business.
Ceconomy’s sales in Russia fell by 7 percent to 526 million euros in the 2016/17 financial year as it closed five stores to bring the total to 57. It said in May sales continued to decline in the first half of the 2017/18 fiscal year.
The Russian retail market has been recovering from a slump, supported by falling interest rates and slowing inflation, and M.video’s sales grew 8.2 percent to 234 billion roubles ($3.65 billion) in 2017 when it opened 27 new stores.
M.video and Eldorado are majority owned by Russia’s Safmar, which is controlled by the family of oil-to-real estate tycoon Mikhail Gutseriev.
(Editing by Maria Sheahan and Alexandra Hudson)
