According to a source close to the deal, last week Euroset transferred the first payment of $10 million to Uralsib. The remaining payments were to be spread over six to eight months, with the total amounting to $80–85 million. The buyback concerned 7.53% of the preferred shares of the Dutch Euroset Holding, which owned all of Euroset's assets.
The deal was the result of an option agreement for the repurchase of securities that Uralsib concluded with Euroset in early 2005. In March 2006, Uralsib announced that it had received 7.53% of Euroset Holding's shares in exchange for the repayment of a $50 million loan issued to Euroset in early 2005. Uralsib and Euroset neither confirmed nor denied the information about the deal.
The Reason: Postponement of the IPO
Market participants linked the buyback to Euroset's postponement of its initial public offering, planned for the end of 2006. "Deals like the one Euroset and Uralsib carried out last year are usually part of preparations for an IPO," said a representative of a large investment fund. According to him, the bank buys a minority stake, conducts legal due diligence on the deal, and then acts as underwriter for the offering; since the IPO was postponed to early 2008, Uralsib decided to return the stake to its owner.
An information memorandum issued in May for Euroset's second bond issue stated: "Over the next three years, the company intends to list its shares on the Russian market, and then on the international market, depending on conditions."
Financial Indicators and Expert Opinions
Euroset is the largest chain of mobile phone stores in Russia and the CIS, with over 4,000 retail outlets. For 2005, the company's revenue was about $2 billion, EBITDA was $105 million, net profit was $62.2 million, and the EBITDA margin was 5%. As of May 22, Euroset's financial debt stood at $240 million.
Experts noted that the company had no free funds to buy back its shares, so it most likely found a new buyer for the securities. "Given Euroset's financial indicators, it is possible that the company could borrow the necessary funds to buy back its shares," said Yuly Matevosov, director of the analytical department at Dresdner Bank. "However, a more sensible option would be to find a new buyer for these securities."
"After the August crisis in the mobile retail market last year, and after the major purchase of the St. Petersburg chain of mobile phone stores Ultra for $30–40 million, Euroset simply does not have $80–85 million, and the company is unlikely to borrow it," believed Kirill Novikov, general director of the Expert chain. "Euroset has found a new owner for its shares. It is difficult to name the deal amount, but it is very likely that this buyer is an investment bank that will be entrusted with Euroset's IPO in 2008."
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