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Russian antitrust likely to clear MegaFon to buy Euroset stake


MOSCOW. Oct 3 (Interfax) - The Russian Federal Antimonopoly Service (FAS) will probably clear telco Megafon to buy the Euroset cell phone retail network on the condition that it sells the products of its rivals.

"Our response will probably be positive and, of course, there will be conditions. We'll oblige them to trade not just their own products but also the products of competitors," FAS chief Igor Artemiyev told a press conference.

Artemiyev said that at this stage there was no indication the companies would have a domineering position. "It's a vertical alliance, so the answer is yes rather than no," he said, adding that the alliance would probably have a market share of less than 30%.

"Alternative sellers have just as much opportunity as Euroset in alliance with Megafon, and some have even more. MTS has even more such shops that could appear from this alliance," he said.

MegaFon asked the FAS for permission to acquire Euroset in September. The FAS said at the time that the deal was "complicated in nature". FAS chief Artemyev said at the time that that the service would carefully analyze the deal from the standpoint of possible harm to competition. "Such vertical integration is always a serious matter. When vertical companies grow too large, that's bad for competition," he said.

MegaFon and USM Advisors, a firm controlled by Alisher Usmanov, the cellular operator's main owner, sought to buy Alexander Mamut's 50% in Euroset. Another 0.1% of the retailer might be acquired from Mamut by Vimpelcom, which owns 49.9% of Euroset. So MegaFon and USM Advisors on the one hand, and Vimpelcom on the other, would each get 50% of Euroset.

"That is why we will be looking closely at the deal. The answer here is not unequivocal, and could be different. We will be working with the applicants and figuring out the coefficient of economic concentration. We must turn to the competitors - the companies MTS, Vimpelcom, and Rostelecom. If the deal is going to limit competition, we will act in accordance with the law," Artemyev said in September.

Business daily Kommersant has reported that Euroset could be valued for the deal at $2.5-$2.7 billion, factoring in its total debts of 10 billion rubles and net debts of 5.5 billion, meaning the value of Mamut's interest is $1.25-$1.35 billion.

The deal might be cash-free, and a final amount will depend on valuation of the assets used as payment, the paper has written. At the beginning of this year, Kommersant reported, citing its own sources, that Mamut might get in exchange for his Euroset stake 100% of the company SUP Media, which is currently held together with Kommersant Publishing House (controlled like MegaFon by Usmanov) and company management.

The deal should be accompanied by a MegaFon and Vimpelcom shareholders agreement on the principles of the corporate management of Euroset. One of MegaFon's terms is that President Alexander Malis, who has run the company for the last three years, should remain in place, a manager close to the retail chain told the business daily Vedomosti.

At the end of last year, Euroset commanded 32% of the Russian cell phone market by unit sales and had 4,700 stores. Its nearest competitor, Svyaznoy, has around 24% of that market.

MegaFon's interest in buying a Euroset stake has long been no secret to the market. Rostelecom has also negotiated an investment in the retailer's capital. One option discussed was MegaFon and Rostelecom acquiring Mamut's stake together.

Mamut had planned to partially divest of Euroset last spring by means of an IPO. Mamut and Euroset itself were prepared to sell up to 43.9% of the company's stock on the London Stock Exchange, with the entrepreneur's stake decreasing to 8.6%. The company was valued for the IPO at $2.7-$3.3 billion, due to an almost complete lack of demand among investors (the bid book for Euroset stock subscribed by 10%-15%).

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