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MegaFon to Pay $5.15 Billion in Dividends as IPO Planned

OAO MegaFon, Russia’s second- largest mobile-phone operator, will pay owners TeliaSonera AB (TLSN), AF Telecom and Altimo $5.15 billion in dividends and pursue an initial public offering in London, ending a governance dispute.

Russian billionaire Alisher Usmanov’s AF Telecom will get majority control of MegaFon, buying part of TeliaSonera’s stake and Altimo’s entire shareholding, Stockholm-based TeliaSonera said today. The shareholders have agreed to sell as much as 20 percent of MegaFon in an IPO on the London stock exchange “as soon as practically possible,” TeliaSonera said.

TeliaSonera and Altimo, the telecommunications arm of Alfa Group, agreed in 2009 to combine their stakes in MegaFon and Turkey’s Turkcell Iletisim Hizmetleri AS (TCELL) in a new company to clarify ownership and increase dividends. That pact was never carried out because of legal disputes. MegaFon’s share sale may raise as much as $4 billion in the world’s biggest IPO since July, people with knowledge of the plan said last week.

“Compared to MTS, MegaFon has a bit inferior growth but higher cash generation power so I think that some people might want to switch from MTS to MegaFon if it’s floated,” said Nadezhda Golubeva, a Moscow-based analyst with UniCredit SpA (UCG), referring to larger rival OAO Mobile TeleSystems. (MBT)

Subscribers

MegaFon had 61.6 million subscribers in Russia at the end of last year, as well as units in Tajikistan, Abkhazia and Ossetia. The company reported net income of 43.6 billion rubles ($1.5 billion) on sales of 242.6 billion rubles last year. MegaFon last week named Ivan Tavrin, a founder of several media companies in Russia, as chief executive officer.

TeliaSonera’s Finnish and Swedish predecessor companies set up MegaFon as a national operator in 2002 with partners by merging local phone companies. Alfa agreed to buy out another owner in 2003. The company contemplated an IPO in 2003 and again in 2005.

“The shares could command a 10 to 15 percent premium over MTS, which trades at a deep discount to its peers due to aggressive activity from major shareholder Sistema,” said Victor Klimovich, a Moscow-based analyst at VTB Capital. TeliaSonera said two independent investment banks would evaluate the share valuation.

London IPO

At $4 billion, MegaFon’s IPO would be the biggest since July, when Spain’s Bankia SA (BKIA) raised $4.4 billion. Six out of the 10 biggest IPOs in London last year were from Russian issuers, according to data compiled by Bloomberg. Moscow-based real estate investment firm O1 Properties Plc is currently gauging investor interest for its London IPO.

TeliaSonera jumped 7.4 percent to 44.50 kronor at 12:25 P.M. in Stockholm. Sweden’s largest telephone company, which is 37 percent state-owned, said it will receive about 22 billion kronor ($3.3 billion) in dividends and proceeds from the sale of an indirect 8.2 percent stake in MegaFon to AF Telecom.

“We are dealing with two of the richest oligarchs in Russia, very successful but also stubborn,” Nyberg said on the call. “They couldn’t agree on the price AF Telecom was supposed to pay for the stake they were buying from Altimo. There was a 200 million gap and we decided to bridge the gap. That’s the real story.”

Altimo will get $5.2 billion in total from dividends and the sale of its 25.1 percent stake. After the IPO, the board is planned to consist of three representatives from AF Telecom, two from TeliaSonera and two independents, TeliaSonera said.

“Nothing concrete has ever been presented to us” on whether Megafon could merge with OAO Rostelecom, Nyberg said, referring to Russia’s dominant long-distance phone company. TeliaSonera’s stake would give it blocking rights on big mergers and acquisitions, he said on the teleconference.

Photographer: Linus Hook/Bloomberg

Lars Nyberg, chief executive officer of TeliaSonera AB, said "we have resolved the ownership disputes and found a way to increase both the liquidity and value of our asset.” Close

Lars Nyberg, chief executive officer of TeliaSonera AB, said "we have resolved the... Read More

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Photographer: Linus Hook/Bloomberg

Lars Nyberg, chief executive officer of TeliaSonera AB, said "we have resolved the ownership disputes and found a way to increase both the liquidity and value of our asset.”

‘Good Price’

“Altimo is getting a good price,” said Sergey Libin, an analyst at Raiffeisen Bank in Moscow. “MegaFon has quite a lot of cash and the IPO doesn’t mean they’ll receive any advantage over competitors because they are already in a better financial position.”

After the shareholder transactions, AF Telecom will own 50 percent plus one share in MegaFon, TeliaSonera will hold 35.6 percent, and MegaFon, through a subsidiary, will own 14.4 percent of its own shares.

“Three years ago I concluded we can probably never get control of MegaFon and then I said I want liquidity,” TeliaSonera Chief Executive Officer Lars Nyberg said in a telephone interview. “We have never seen a dime from this investment, it has been terrific but we’ve never seen any cash so having a one-time dividend and a dividend policy was very attractive to us.”

Turkcell Dispute

MegaFon’s three main shareholders have been discussing the ownership and governance of the company for about three months, Cecilia Edstroem, a TeliaSonera spokeswoman, said April 11. Koray Ozturkler, Turkcell’s chief corporate affairs officer, didn’t answer phone calls from Bloomberg seeking comment.

Altimo will continue working with TeliaSonera on Turkcell and expects legal disputes over a stake sale to be resolved this year, Alfa Group Chairman Mikhail Fridman said in the statement.

The dispute over Turkcell dates back to 2005 when Cukurova Holding AS sold a 13 percent stake in the Turkish phone company to Alfa Group after agreeing to sell it to TeliaSonera. Alfa Group (ALFA) won a court decision in the Eastern Caribbean giving it control of the disputed shares. TeliaSonera, which cooperated with Alfa Group, was awarded $932 million by a Geneva court last year in place of the shares.

To contact the reporter on this story: Diana ben-Aaron in Helsinki at dbenaaron1@bloomberg.net

To contact the editor responsible for this story: Kenneth Wong at kwong11@bloomberg.net

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