Russia's Sistema buys $256 million stake in Melon Fashion Group after scrapped IPO

MOSCOW (Reuters) -Russian telecoms-to-healthcare conglomerate Sistema agreed a $256 million deal for a stake in Melon Fashion Group on Wednesday, months after the retail outlet scrapped plans for an initial public offering (IPO) due to the conflict in Ukraine.

Based in St. Petersburg on a site that housed a sewing factory in Soviet times, Melon owns four mainly women's fashion brands - Zarina, Befree, Love Republic and Sela - and had 846 stores across Russia, Armenia, Kazakhstan and Belarus at the end of 2021.

Plans for an IPO sometime this year were shelved after Russia launched what it calls its "special military operation" in Ukraine.

In a statement, Sistema said it would acquire 47.7% of Melon from Swedish investment group Eastnine and East Capital Holding and some private investors for a total of 15.8 billion roubles ($256 million).

For Eastnine, the sale represents a rare successful exit for a Western firm offloading its Russian assets. It will secure around 193 million euros ($189 million) for its 36% stake, Eastnine said in a statement.

At the end of 2021, it valued its shares at 122 million euros ($120 million), and in March warned the conflict in Ukraine would see that drop.

Several Western companies and investors have sold their Russian operations for token sums as part of an exodus of Western companies.

Analysts at Moscow-based Renaissance Capital said the deal was positive for Sistema, a sign that some Western exits are creating opportunities for Russian investors.

"Currently the Russian fashion retail market is likely negatively affected by consumer environment trends, however given possible market share gains from exiting foreign players ... we believe Melon Fashion Group is likely to continue growing well," analyst Kirill Panarin said in a research note on Wednesday.

Sistema President Tagir Sitdekov said Melon Fashion Group "is growing fast and demonstrating operational excellence", and said Sistema had the right experience to continue developing the company.

The deal is expected to complete by the end of 2022, Sistema and Eastnine said in separate statements.

It is subject to regulatory approvals by Russia's competition authorities, and will require the greenlight of a Kremlin commission established earlier this year to govern the disposal of Russian assets by Western firms.

($1 = 61.70 roubles)

($1 = 1.02 euros)

(Reporting by Jake Cordell and Alexander Marrow; Editing by Emelia Sithole-Matarise and David Evans)