Megafon buys Euroset stake from key shareholder

MOSCOW, July 9 (Reuters) - Russia's second biggest mobile phone operator Megafon has finalised its 2012 deal to buy a stake in cellphone retailer Euroset, paying its key shareholder $657.3 million in shares, the company said on Wednesday.

Megafon, controlled by Russia's richest man Alisher Usmanov, together with his acquisition vehicle Garsdale, bought 50 percent of Euroset for $1.07 billion nearly two years ago. The other 50 percent in Euroset belongs to Megafon's competitor, Vimpelcom (NasdaqGS: VIP - news) .

The initial deal envisaged Megafon gaining full control of the Euroset stake within a year, buying 25 percent from Garsdale within a year. The condition was later extended until 2015.

The price paid in the deal corresponded to the $535 million initial investment plus $50 million in additional payments representing Garsdale's "earn out", as well as accumulated 8 percent interest, Megafon said.

"Megafon has completed its commitment to Garsdale with respect to the Euroset transaction at this time in order to eliminate a sizeable foreign currency liability from the company's balance sheet and reduce the average cost of our debt," Megafon Chief Executive Ivan Tavrin said in a statement.

"We used our treasury shares instead of cash as the currency of payment to retain adequate liquidity position in volatile credit market environment." (Additional reporting by Alexei Kalmykov; Writing by Lidia Kelly, editing by David Evans)