Mamut Takes On Yevroset And Debt

The owners of Yevroset, the country's largest mobile phone retailer, said Monday that they had reached an agreement on the company's sale to ANN, the investment vehicle of billionaire Alexander Mamut.

According to the deal, the current management team would remain in place after the sale is finalized, with former co-owner Yevgeny Chichvarkin remaining as chairman of the board.

"The new owner of Yevroset is Alexander Mamut," Natalya Aristova, spokeswoman for the company said in an e-mailed message on Monday.

Aristova said the company's development would continue to be overseen by Chichvarkin but that final decisions would now be made by Mamut.

Aristova would not provide any financial details for the deal, but Kommersant reported Monday that the transaction was worth about $1.25 billion, citing sources close to the deal.

The deal calls for Mamut to pay $400 million in cash and assume about $850 million in debt, the paper said.

"The price of $1.25 billion is just about right for Yevroset in the current environment," said Alexander Kuznetsov, a telecoms analyst at ING Bank. "The company is burdened by a huge debt of $850 million, and if you add in high interest rates and debt servicing, which could consume the company's EBIDTA, then you understand why they are selling."

Sergei Savin, a telecoms analyst with J'son & Partners, said the deal gives Yevroset access to a crucial source of cash if it is to meet its debt obligations.

"The liquidity crisis has made it increasingly difficult for mobile retailers to borrow money for development," Savin said. "The $1.25 billion reported appeared to be a fair price, even though it was hundreds of millions lower than the figures being bandied around a few months ago."

Savin said Mamut could resell the company after restructuring it or continue to pump in money to help it maintain its No. 1 spot in the market.

Mamut, whose ties to the Kremlin go back to the era of former President Boris Yeltsin, has been spending heavily on media and telecoms properties as more and more Russians opt for life online.

His media firm, SUP, acquired LiveJournal, one of the world's most popular blogging and social networking web sites, in December.

His most important role in the telecoms market was as owner of a 49 percent stake in Internet provider Corbina, which he later sold to VimpelCom, the country's No. 2 cell phone operator.

Mamut's spokeswoman, Yulia Shakhnovskaya, declined comment on the deal when contacted on Monday.

The immediate question the purchase raised is what Mamut's plans for Yevroset might be.

Nadezhda Golubeva, telecoms analyst at UniCredit Aton, said the change of ownership would not itself impact the market, unless Mamut plans to resell or transfer stakes to MTS, the country's largest cellular provider.

"A mobile operator acquiring the biggest mobile retailer is the kind of news that would bring a sea change in the market," Golubeva said.

MTS confirmed earlier in the month that it was interested in buying a stake in Yevroset, something that could presage a move by mobile service providers to become more vertically integrated and begin bundling handsets with subscriber contracts.

Irina Kokhanovskaya, public relations director for MTS, said Monday that no decision had been made about a purchase of a stake in Yevroset but that such a move was under consideration.

"Buying a stake in the company is one of the options on the table, but no strategic decision has been made so far to go ahead," Kokhanovskaya said. "If and when we decide to buy, we will be ready to negotiate with whoever owns Yevroset."

Analysts said Yevroset could instead end up tied in with Vimpelcom, where two of the main owners are billionaire Mikhail Fridman's Alfa Group and Norway's Telenor. Such a purchase would likely be made by Altimo, Alfa Group's telecoms arm.

"You can't rule out the fact that Mamut bought the company on behalf of Altimo, even though there is no confirmation yet," ING's Kuznetsov said. "The lineup of potential buyers has always included Mamut, Altimo and MTS, and Mamut has strong links with the controlling shareholder of Altimo."

Representatives of Altimo said Monday that all questions concerning Yevroset should be directed to vice president Kirill Babayev, who was out of the country.

Yevroset now operates 5,158 retail outlets in Russia and CIS. The company reported revenues of $5.61 billions last year.

The company was the focus of criminal investigation earlier this month, including raids on its offices and the arrest of two employees on charges of extortion and kidnapping.

Chichvarkin has consistently maintaned the company's innocence.