June 5 (Bloomberg) -- OAO Mobile TeleSystems, Russia’s largest wireless operator, is studying an acquisition of pay-TV and Internet provider Akado to expand in the broadband business in the Moscow region, a person familiar with the matter said.
MTS expressed interest in Akado and started preliminary talks, which won’t necessarily result in an acquisition, said the person who asked not to be identified as the discussions are private. Moscow-based MTS needs to study Akado’s business and evaluate compatibility and potential savings, the person said.
Akado may have an enterprise value of about $690 million to $960 million, Anna Lepetukhina, an analyst at Sberbank Investment Research, said in a note today. Excluding Akado’s debt, this means MTS may need to pay as much as $580 million in cash and “could well afford it,” she said. The deal would help MTS boost its market share in the Moscow region to 48 percent, ahead of VimpelCom Ltd.’s 23 percent, Lepetukhina said.
“MTS acquiring Akado would make it the indisputable leader in broadband services on the Moscow market,” she said.
MTS declined as much as 3.2 percent in Moscow trading to the lowest level since January and dropped 2 percent to $18.58 a depositary receipt at 11:15 a.m. in New York.
European phone companies are boosting investment in broadband networks to offer services such as online movie streaming, part of an attempt to broaden their revenue streams as most people already have mobile phones. Telecom Italia SpA is planning 10 billion euros ($13 billion) in fiber-optic investments for its fixed-network unit, people familiar with the situation said last week, and last year, Vodafone Group Plc acquired Cable & Wireless Worldwide to boost its fixed-line system in the U.K.
Akado, controlled by billionaire Viktor Vekselberg, is the sixth-largest broadband provider in Russia with 770,000 customers, with over 90 percent of them in Moscow, according to iKS-Consulting. Akado boosted revenue 9 percent last year to 11.2 billion rubles ($350 million), while earnings before interest, taxes, depreciation and amortization were 38 percent of sales, the company reported last month.
Irina Agarkova, an MTS spokeswoman; Denis Rychka, a spokesman for Akado; and Andrey Shtorkh, a spokesman for Vekselberg, declined to comment.
The Kommersant newspaper today reported MTS’s interest in Akado.
Billionaire Alisher Usmanov’s mobile operator OAO MegaFon has said it considered acquiring Akado two years ago and failed to agree on terms. State-run OAO Rostelecom’s affiliate CenterTelecom attempted to buy Akado in 2010, yet the deal fell apart, Kommersant said.
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