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.
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.
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.
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.
