December 7, 2012 / 7:50 AM / in 5 years

UPDATE 2-MegaFon takes stake in mobile retailer in $1.1 bln deal

* MegaFon to hold joint control of Euroset with Vimpelcom

* Two-step deal sees MegaFon take 50 pct after one year

* MegaFon buying stake from tycoon Alexander Mamut

MOSCOW, Dec 7 (Reuters) - MegaFon , Russia’s No.2 mobile operator, has completed a $1.07 billion deal to buy a stake in cellphone retailer Euroset to expand the number of shops through which it can sell its services.

MegaFon, controlled by Russia’s richest man Alisher Usmanov, announced plans in October to buy half of Euroset, pitting it against rival Vimpelcom which owns the remainder of the asset. MegaFon competes against Russia’s biggest operator MTS as well as No.3 Vimpelcom.

Under the deal, Lefbord Investments - owned equally by MegaFon and Usmanov’s Garsdale vehicle - has bought 50 percent of Euroset for $1.07 billion. It will pay an additional $100 million if Euroset meets certain targets.

After one year, MegaFon will buy Garsdale’s stake in Lefbord, gaining full control over 50 percent of Euroset, MegaFon said on Friday.

MegaFon previously said the deal could cost it up to $1.33 billion, which includes other costs such as interest payments.

MegaFon and Garsdale are buying the stake from tycoon Alexander Mamut, who has been looking to sell his holdings since last December. Mamut also holds a stake in Russian miner Polymetal..

Vimpelcom said on Friday it had increased its ownership interest in Euroset by 0.1 percent to give it 50 percent control, giving it equal economic and governance rights in the company. Vimpelcom previously had a minority interest in Euroset with more limited governance rights, it said in a statement.

Euroset has 5,500 stores in Russia and Belarus and will boost the distribution power of MegaFon, which runs 1,750 of its own stores and 2,000 franchisee shops, according to VTB analysts.

MegaFon in November raised $1.7 billion in an initial public offering in London and Moscow.

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