(Adds slide in Teknosa shares)
By Ceyda Caglayan and Matthias Inverardi
ISTANBUL/DUSSELDORF, Aug 29 (Reuters) - German consumer electronics retailer MediaMarkt has suspended plans to buy shares in Turkey’s Teknosa, two sources close to the matter said, after recent falls in the lira hit profits of Turkish firms.
Shares in Teknosa tumbled 17.6 percent to 3.84 lira on the news, while the main share index was 0.58 percent lower.
One source said MediaMarkt was reviewing its valuation of the Teknosa stake following the lira’s slide to record lows, which dampened demand for imported electronics and raised rental costs for stores, which are mainly priced in foreign currency.
“MediaMarkt has suspended the plans due to recent foreign exchange volatility. It will review the valuation of Teknosa and decide later to go ahead with the acquisition or not,” the source said, adding a decision may not be reached until October.
Another source confirmed the negotiations were stalled, but said they were not completely cancelled.
MediamarktSaturn, which owns MediaMarkt, declined to comment. Teknosa and parent Sabanci Holding did not immediately respond to questions about the issue.
The sources did not specify the size of the stake MediaMarkt was seeking. Sabanci Holding owns just over 60 percent of Teknosa. Another 10 percent is held by Sabanci family members, and the rest are free floating shares.
Ceconomy, the parent company of MediaMarkt and MediaMarktSaturn said in a quarterly report two weeks ago that the weak lira had weighed on sales in Turkey.
Turkey’s electronic goods market was valued at 54 billion lira at the end of 2017, 16 percent up from the previous year, Teknosa said in its annual report.
Despite continued growth potential on the back of Turkey’s young population, however, several firms have already downsized or closed because of intense competition and the steady erosion of the lira even before this year’s 40 percent slide.
That fall in the currency has caused unease among other companies planning Turkish investments. Japanese firm Toyo Ink postponed plans this week for a polymers plant in Turkey, while retailer Amazon also pushed back its entry into Turkish markets.
Britain-based Electroworld and French company Darty have in past years left the Turkish market, selling their stores to Bimeks, while Germany’s Electronic Partner and U.S. electronics giant Best Buy sold out to Teknosa.
Those exits left MediaMarkt as the only international electronics company active in the country. Domestically, Teknosa, Bimeks and Vatan are the leading actors in the sector.
Bimeks however has slashed the number of stores in Turkey to just six from 130 at the end of 2016. Teknosa shut 70 stores in 2016, leaving it with 207 across the country now, and declared losses of 10 million lira in the first half of this year.
While MediaMarkt Turkey does not disclose its revenue, Chief Executive Officer Yenal Gokyildirim has said it grew 30 percent and opened 12 new stores across the country in 2017. MediaMarkt had 68 stores in Turkey at the end of June, according the parent company’s quarterly report.
In March, Gokyildirim said Turkey, along with Germany and Spain, was driving the company’s sales growth and that MediaMarkt aimed to expand activities in the Turkish market. ($1 = 6.4440 liras) (Editing by Dominic Evans and David Evans)