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bne April 2018 Cover Story I 27
The merger between Russian con- years to ensure a smooth integration. spending, profits, investment and wage
sumer electronics giants M.Video
and Eldorado was confirmed in March, and will create not just one of the biggest electronics retailers in Europe, but a top 10 global player.
The crisis of the last eight years has forced a consolidation in many sectors in Russia, but until now the deals have usually been the market leaders taking over the best of their struggling smaller rivals. The M.Video-Eldorado merger will be the first big-with-big merger combing two of Russia’s top companies to create an unrivalled national retail champion as big as any company in the rest of Europe.
The merger makes sense as M.Video, founded in 1993, was starting to run out of road. Since Alexander Tynkovan set up the first store a quarter of a century ago on Maroseyka street in central Moscow (hence the M in the name), the company has grown to be the dominant force in the sale of gadgets and widgets so beloved by the Russian consumer. Today it has 424 stores in over 160 cities across Russia and employs over 15,000 staff. Sales have ridden the wave of rising middle class incomes and topped RUB200bn ($3.4bn) at the end of last year, and the company is still growing.
Eldorado has a similar profile. Although, unlike M.Video, it is not publicly traded, it has 415 stores and achieved revenues of RUB106bn ($1.8bn) in 2017.
“We are a national champion brand,” Tynkovan and Said Gutseriev, the owner of Eldorado tell bne IntelliNews in an exclusive interview. “The recent crisis has been painful but we have been through multiple crises like the one in 1998. We are well trained by this volatile environment and there has been a very high level of competition the whole time,” explained Tynkovan, exuding the energy he is famous for as a legendary retailer in the Russian market.
Tynkovan sold his remaining shares in M.Video to Gutseriev in April 2017 who paid the market rate of $7 per share, but says that he will stay on and manage the combined business for at least three
The Gutseriev family was later into the retail game and acquired Eldorado in December 2016 for a reported RUB26bn ($523mn) from Czech investment group PPF Group N.V., the investment vehicle of Czech billionaire Petr Kellner. Ranked by Forbes as Russia’s richest family, its patriarch Mikhail Gutseriev, Said’s father, made his first fortune with Russneft (not to be confused with the state-owned oil giant Rosneft) which bought up small oil fields, too small to interest the various major oil companies in the sector, until it was a major player in the oil game. Since then Safmar has gone on to invest into leasing, real estate, warehousing, finance and now retail.
“We were thinking about where we needed to go next and we decided that with the advent of the internet and e-commerce, retail offered the most attractive investments,” says Gutseriev, who is just about to turn 30 and has taken over running the family’s retail investments amongst other things.
M.Video in the driving seat
M.Video will remain in the driving seat after the merger. “We plan to have two brands but one model,” says Tynkovan, who only ever had one job, working as a sales assistant in an electronics retail store, before starting M.Video.
“It was the arrogance of youth,” says Tynkovan. “I thought I can do this and so rented a room with my partner Pavel Breev and put some TVs and video recorders on the shelves and started selling them.
The company grew quickly but remained Moscow-based as in the 1990s all the money in Russia was concentrated in the capital. M.Video went to the regions in 2000, just after Vladimir Putin took over from Boris Yeltsin as president and ushered in
the boom years. Sales were driven by the 10% annual gains in income that marked that decade thanks to the recovery of oil prices from a low of $10 per barrel to a peak of $150 some 15 years later. The petrodollars primed the pump and started a virtuous circle of
hikes turning that fuelled the boom.
As the business became seriously large, Tynkovan realised that they needed to go to the next level and started looking around for advice.
“We couldn't afford to hire the likes of McKinsey or Deloitte so I approached people that had been running other retail networks but were now retired and hired them as consultants. They taught us how to do catalogue, retail, store and distribution management.”
The next step was also to hire expats
to work in management due to the perennial shortage of qualified mangers in Russia, which remains a problem to this day.
Finally, on the recommendation of his friends, he set up a board of directors. This was also unusual as most busi- nesses were run in the Soviet fashion where the owner sat the top of a narrow chain of command and simply ordered their minions about. Tynkovan set up a board of directors four years before the
“The M.Video-Eldorado merger is the first big-with-big merger combing two of Russia’s top companies to create an unrivalled national retail champion”
company eventually went public in November 2007, making the transition to listed life easier.
“We started to run the business using the board of directors just because it was a more efficient way to run the company, and adopted all the best corporate governance practices even
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