April 9 (Bloomberg) -- OAO Mobile TeleSystems, Russia’s biggest mobile provider, is abandoning plans to challenge state-run VTB Group’s takeover of Tele2 AB’s local unit and will seek talks with the lender about consolidation in the industry, Chief Financial Officer Alexey Kornya said.
“There is no point in fighting now, the deal is done already,” Kornya said in an interview at Bloomberg’s headquarters in New York yesterday. “They are a financial company and not a telecommunications player. VTB will exit from this investment sooner or later.”
MTS, as the Moscow-based company is known, vowed last week to fight the buyout after Stockholm-based Tele2 rebuffed its joint bid with VimpelCom Ltd., Russia’s No. 3 mobile company, that offered a 30 percent premium to VTB’s $3.55 billion deal. Tele2 completed the acquisition April 4 with VTB, which Renaissance Capital and Otkritie Financial Corp. say may sell Tele2 Russia to state-run OAO Rostelecom, the country’s biggest fixed-line operator.
American depositary receipts of MTS drove gains in the Bloomberg Russia-US Equity Index of the most-traded Russian stocks in the U.S. yesterday, adding 0.7 percent to $19.77 in the biggest one-day rally in more than a week. MTS stock climbed 1 percent to 263.77 rubles, or $8.45, on Moscow’s Micex Index. Each ADR is equal to two shares. The Russia-US gauge rose for the first time in six days, adding 0.1 percent.
The combination of Rostelecom and Tele2 would create a company with 36.3 million mobile subscribers, according to fourth-quarter data from Advanced Communications & Media. That compares with 71 million for Moscow-based MTS and 56 million for VimpelCom. A merger would intensify competition for the nation’s three biggest providers, which include OAO MegaFon, Otkritie analyst Alexander Vengranovich said last week.
Calls to the press services of Rostelecom and VTB after normal business hours in Moscow yesterday weren’t answered. Vedomosti newspaper reported April 5 that VTB, the country’s second-largest lender, and Rostelecom investor Arkady Rotenberg are in talks to set up a joint venture with Tele2 Russia, citing people it didn’t identify. Rotenberg is a former judo partner of President Vladimir Putin.
“MTS has changed its tactics and what it is doing now is a win-win for the company,” Konstantin Belov, an analyst at UralSib Financial Corp., which rates MTS stock hold, said by phone yesterday from Moscow.“Even if MTS is unable to buy Tele2 in the end, it will still weaken Rostelecom by delaying its merger with Tele2 and making Rostelecom pay a higher price than what it could have hoped for. It is very smart.”
VimpelCom expects to continue to work with MTS on Tele2 and is “considering” its options regarding the company, Amsterdam-based spokesman Bobby Leach said by e-mail yesterday.
VimpelCom, which saw its subscribers decrease in two out of four quarters last year, has the most to lose from a Rostelecom-Tele2 Russia tie-up as it has already been shedding market share and is lagging behind on fourth-generation wireless services, Alexander Kazbegi, a telecommunications analyst at Renaissance in Moscow, said last week. The company’s ADRs rallied 0.3 percent to $11.73 in New York yesterday.
Futures on Russia’s dollar-denominated RTS Index added 0.7 percent in U.S. hours to 138,770. The RTS Volatility Index, which measures expected swings in the stock futures, fell 0.9 percent to 18.51. The Market Vectors Russia ETF gained 0.9 percent to $27.21 yesterday, after slipping 2.8 percent last week.
MTS’s Kornya is in New York for a Russia investment conference hosted by VTB and plans to talk to executives from the lender about Tele2 Russia, though “that cannot be considered the start of official talks,” he said in the interview. “Tele2 has never expressed an interest in selling this asset to us, although we had expressed our interest in purchasing the asset.”
Rostelecom slipped 0.9 percent to $22.297 in New York yesterday, the lowest level since March 19. Each ADR is equal to six Moscow-listed shares. The stock dropped 2.1 percent to 115.68 rubles, or $3.70, on the Micex, while MegaFon jumped 3.5 percent to $27.90 in London, the steepest one-day gain since March 11.
“There is no clear intention to give it to Rostelecom,” Kornya said. Merging Rostelecom with Tele2 Russia wouldn’t be “straightforward” and would be “difficult” as Rostelecom has a bureaucratic, state-run structure, while Tele2’s structure is Scandinavian, he said.
MTS plans to focus on Russia as it is “quite skeptical on cross-border synergies in telecommunications,” Kornya said yesterday. The provider estimates about 50 percent of its subscribers will have smartphones by the end of 2014, from more than 20 percent now, he said.
Ruble futures showed the currency weakening 1.1 percent to 31.66 per dollar in U.S. hours yesterday. The ruble gained 1 percent to 31.2195 against the dollar and rose 1 percent to 35.4306 versus the dollar-euro basket used by the central bank to manage swings that erode exporter competitiveness.
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