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Rostelecom Said to Hire JPMorgan, Credit Suisse for Tele2 Deal

Sept. 5 (Bloomberg) -- OAO Rostelecom, Russia’s state-run phone company, hired advisers to help it combine with wireless carrier Tele2 Russia to form a fourth mobile operator, a person briefed on the matter said.

The phone company hired JPMorgan Chase & Co. and Credit Suisse Group AG as advisers, said the person, who asked not to be identified as the discussions are private. State-controlled VTB Group acquired Swedish Tele2 AB’s Russian unit in a $3.55 billion deal in April. While Rostelecom is majority owned by the state, it also has private shareholders.

A combination would help the two companies challenge market leaders OAO Mobile TeleSystems, OAO MegaFon and VimpelCom Ltd. as the mobile-phone market in Russia expands with increased use of smartphones to browse the Internet.

Rostelecom has almost 14 million mobile users, while Tele2 Russia has 23 million. Working in different regions, the companies fit well together and would form a fourth countrywide wireless operator if combined, according to Konstantin Malofeev, a private shareholder in Rostelecom.

The banks are proposing to combine the Moscow-based companies’ wireless assets into a joint venture where Rostelecom would have control, Vedomosti reported today, citing unidentified sources. Rostelecom said last month it plans to finalize its strategy including wireless expansion in October.

Andrey Polyakov, a Moscow-based spokesman for Rostelecom, declined by phone to comment, as did Irina Rybakova, a spokeswoman for Tele2 Russia, and VTB’s press office. JPMorgan and Credit Suisse press officials didn’t immediately return calls requesting comment.

Seeking Acquisition

Rostelecom shares rose as much as 1.2 percent and traded up 0.6 percent by 6:01 p.m. in Moscow, giving it a market value of $9 billion.

Mobile TeleSystems and VimpelCom have said they’ve been seeking to acquire Tele2 Russia. Within Russia, MTS had almost 72 million users at the end of the second quarter, while MegaFon had 64 million and VimpelCom had 57 million, according to researcher AC&M Consulting.

“The potential integration of its mobile assets with Tele2 will be a strategically logical development for Rostelecom,” Konstantin Chernyshev, a telecommunications analyst at VTB Capital, said in a note today. “Any financial implications are hard to estimate at this point when the terms remain unclear.”

To contact the reporter on this story: Ilya Khrennikov in Moscow at ikhrennikov@bloomberg.net

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

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