Fridman Considers Making $4 Billion Bid for Tele2 Russia

Billionaire Mikhail Fridman’s Alfa Group said it’s ready to trump lender VTB Group’s bid for Tele2 AB’s mobile-phone assets in Russia and is considering a takeover of the entire Swedish telecommunications company.

A1, an investment arm of Alfa, is willing to pay $3.6 billion to $4 billion in cash for Tele2 Russia and is interested in agreeing on a price for the remaining assets of Stockholm-based Tele2 “over a short period of time,” it said today. VTB, Russia’s second-largest lender, reached a deal yesterday to acquire Tele2 Russia for $3.55 billion in cash and debt.

Tele2 shares rose 4.5 percent in the Swedish capital. A1 held talks with Tele2 and shareholder Investment AB Kinnevik last year, although an offer with “a significantly higher price” than VTB’s was rejected in October by Tele2, A1 said. Tele2’s exit from Russia after 12 years followed its failure last July to win a wireless license to run faster services in the country, leaving it with an outdated network just as consumers devour more data with smartphones and tablets.

“VTB is a very serious purchaser that gave us a straightforward deal that’s easy to close,” Lars Torstensson, a Tele2 spokesman, said in an interview today. Tele2 is going to try and close this deal “as swiftly as possible,” he said.

Financial Investor

In an interview today, VTB First Deputy Chief Executive Officer Yuri Soloviev said the bank isn’t buying the asset on behalf of anyone else, although it’s looking at potential shareholders to add strategic value, “be it a Russian or a foreign investor.”

“We’re open to any proposals,” VTB CEO Andrey Kostin said yesterday in an interview in Stockholm.

Telecommunications is a strategic industry for Fridman’s Alfa Group, which controls VimpelCom Ltd., a Tele2 rival in Russia. Alfa last week completed a $14 billion sale of a stake in oil company TNK-BP. Fridman has a net worth of $15.2 billion and ranks 52th in the Bloomberg Billionaires Index.

Tele2 assets will have synergies with VimpelCom, said A1 managing partner Dmitry Vozianov.

“We’ve been in talks with Tele2 and the Stenbeck family for the last one and a half years,” Vozianov said, referring to the Swedish family that controls Kinnevik. “We planned another round of talks next week.”

Tele2 Russia may also attact other carriers such as former fixed-line monopoly OAO Rostelecom, according to Aalandsbanken analyst Lars Soederfjell. Russia’s three largest wireless providers are OAO Mobile TeleSystems, VimpelCom and OAO MegaFon.

Deal Multiples

VTB isn’t in talks with the country’s phone companies over a Tele2 deal, CEO Kostin said.

Yesterday’s agreement with VTB values Tele2 Russia at 4.9 times its 2012 earnings before interest, taxes, depreciation, and amortization. That compares with a median multiple of 4.3 times among transactions in the European wireless industry over the past three years, data compiled by Bloomberg showed.

Tele2 plans to pay shareholders 12.5 billion kronor ($1.9 billion), or 28 kronor a share, after the transaction is completed. Kinnevik, Tele2’s biggest holder, said it would receive about 3.8 billion kronor in cash.

Shares of Tele2 closed at 113.40 kronor in Stockholm, valuing the company at $7.8 billion. They have fallen 3.2 percent this year.

The sale of the Russian assets will allow the company to focus on its core markets in Sweden, the Netherlands, Norway and Kazakhstan, Tele2 said. In December, Tele2 acquired a wireless license in the Netherlands.

‘Investment Phase’

“We are in an investment phase,” Chief Financial Officer Lars Arne Nilsson said in an interview. The deal will “help us come closer to our leverage targets.”

Tele2’s Russian unit had Ebitda of 1.24 billion kronor in the fourth quarter, compared with 1.21 billion kronor a year earlier, accounting for 47 percent of the group’s earnings by that measure. The unit’s customers rose by 373,000 in the period to 22.7 million.

As of December 31, Tele2 had 22.7 millions users in Russia, MTS had 71.2 million, MegaFon 62.6 million, VimpelCom 56.1 million and Rostelecom 13.6 million, according to researcher AC&M Consulting.

As older Russian markets mature and competitors fight for clients, it’s more costly for operators to find new users. New regions in Russia, which are more profitable, are expected to help balance declining margins elsewhere in the country, Tele2 CEO Mats Granryd said last month.

‘Big-Three Scenario’

“Given the presence of an intermediary in the transaction, it seems most logical to us to assume that the Big Three scenario is in play, though Rostelecom acquiring Tele2 Russia also cannot be ruled out as yet,” said Anna Lepetukhina, an analyst at Sberbank Investment Research.

VimpelCom won’t exclude the possibility of taking part in a Tele2 deal if such an opportunity arises, spokeswoman Natalya Tashkeeva said, calling Tele2 a “significant player.”

MegaFon isn’t in talks with VTB, spokesman Petr Lidov said. MegaFon may consider parts of Tele2 if they are offered, Director Ivan Streshinskiy said in December, adding such an acquisition may make sense if carried out jointly with other operators.

MTS spokeswoman Irina Agarkova and Rostelecom spokeswoman Kira Kiryukhina declined to comment. Both companies have previously confirmed potential interest to Tele2 assets.

VTB Capital advised VTB Group on the transaction, while Morgan Stanley is Tele2’s adviser.

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