MTS Vows to Fight VTB’s $3.6 Billion Tele2 Russian Takeover
OAO Mobile TeleSystems (MBT), Russia’s largest wireless carrier, plans to fight the purchase of Tele2 AB (TEL2B)’s local unit by a state-run lender and may invite competitor OAO MegaFon (MFON) to divvy up the assets if its counterbid prevails.
“We do believe there is room to put the VTB deal on hold and persuade Tele2 leadership to consider our offer, which is financially superior,” said Michael Hecker, vice president for strategy at MTS, as the Moscow-based company controlled by billionaire Vladimir Evtushenkov is known.
MTS and rival VimpelCom Ltd. (VIP), which is controlled by billionaire Mikhail Fridman’s Alfa Group, jointly offered as much as $4.25 billion for Tele2 Russia last week, seeking to trump an agreed takeover of the business by Kremlin-backed VTB Group for $3.55 billion in cash and debt. VTB may combine Tele2 Russia with the mobile assets of state-run OAO Rostelecom, which would form a fourth nationwide wireless carrier in Russia, Otkritie Capital said last week.
Rostelecom is 10.7 percent owned by President Vladimir Putin’s former judo partner Arkady Rotenberg, while the company’s newly appointed CEO, Sergey Kalugin, previously worked for another of Putin’s allies, Yury Kovalchuk.
“We don’t want to prevent anything,” Hecker said in a phone interview yesterday, adding that MTS isn’t afraid of the emergence of a fourth nationwide mobile carrier. “We want to create additional value both for us and for Tele2 shareholders.”
The transaction with Tele2 is legally binding, with all necessary corporate approvals from Tele2 and VTB obtained, VTB said in a statement. The Moscow-based lender applied through a unit for antitrust approval for the deal, Russia’s Federal Anti- Monopoly Service said yesterday.
In a statement today, Stockholm-based Tele2 reiterated that it expects the deal to be completed “shortly.” The agreement includes provisions that give Tele2 rights, for 12 months after the transaction is complete, to “half of the net cash profits obtained by the VTB Group from certain types of transfers of Tele2 Russia shares and assets to non-VTB Group entities,” it said.
Tele2 fell 0.2 percent to close at 113.20 kronor in Stockholm. MTS added 0.8 percent to $20.91 at 12:33 p.m. in New York. Rostelecom fell 0.4 percent to 120.65 rubles.
“Today’s statement from Tele2 is simply another piece of evidence that they are leaving money on the table and know that the asset is worth much more,” Hecker said today. Tele2 hasn’t responded to MTS’s offer, he added.
Tele2 has mobile coverage in 41 out of 83 Russian regions and 22.7 million users, while Rostelecom covers 30 regions and has 13.6 million mobile customers. The two carriers combined, while still a distant No. 4, would create a nationwide operator with the scale to step up competition with bigger rivals.
At the end of last year, MTS had 71.2 million customers, MegaFon 62.6 million and VimpelCom 56.1 million, according to researcher AC&M Consulting.
Tele2 Russia’s assets would be split between MTS and VimpelCom in a way that fits Russian antitrust requirements and benefits customers, Hecker said. He declined to discuss which of the regional assets MTS wants.
“Combining with Tele2 in certain regions will give MTS and VimpelCom significant synergies, while millions of Tele2 customers will benefit from more affordable tariffs on on-net calls and will enjoy fast data services, both of which Tele2 cannot match,” Hecker said.
MegaFon spokesman Petr Lidov declined to comment.
For Fridman, whose Alfa Group controls VimpelCom, the telecommunications industry is also a strategic investment. Alfa on March 31 made a $1.8 billion offer to buy out investors in Orascom Telecom Holding SAE (ORTE), which is about 52 percent owned by VimpelCom. Orascom has networks in Bangladesh, central Africa and Pakistan and is seeking to end an ownership conflict with the Algerian government.
Alfa last month completed a $14 billion sale of a stake in oil company TNK-BP.
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