Sistema, a Russian telecoms-to-healthcare conglomerate, agreed to a $256 million deal for a stake in Melon Fashion Group on Wednesday, months after the retail outlet canceled plans for an IPO due to the conflict in Ukraine.

Melon, based in St. Petersburg on the site of a former Soviet sewing factory, owns four primarily 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 this year were put on hold after Russia launched its “special military operation” in Ukraine.

Sistema said in a statement that it would buy 47.7% of Melon from Swedish investment firms Eastnine and East Capital Holding, as well as some private investors, for a total of 15.8 billion roubles ($256 million).

The sale represents a rare successful exit for a Western firm offloading its Russian assets for Eastnine. Eastnine said in a statement that it will receive around 193 million euros ($189 million) for its 36 per cent stake.

It valued its shares at 122 million euros ($120 million) at the end of 2021, but warned in March that the conflict in Ukraine would cause that to fall.

Several Western companies and investors have sold their Russian operations for pennies on the dollar as part of a Western company exodus.

According to Renaissance Capital analysts in Moscow, the deal was positive for Sistema, indicating 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.

Melon Fashion Group, according to Sistema President Tagir Sitdekov, is “growing fast and demonstrating operational excellence,” and Sistema has the right experience to continue developing the company.

The transaction is expected to close by the end of 2022, according to separate statements from Sistema and Eastnine.

It is subject to regulatory approvals from Russia’s competition authorities, as well as the approval of a Kremlin commission established earlier this year to govern the sale of Russian assets by Western firms.

(Adapted from Reuters.com)

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