Oligarchs seek to shake up Russia's MegaFon

MOSCOW/STOCKHOLM Wed Apr 11, 2012 6:18pm EDT

1 of 2. Russian billionaire Alisher Usmanov attends the opening of an art exhibition in Konstantinovsky Palace in St.Petersburg May 12, 2008

Credit: Reuters/Alexander Natruskin

Related Topics

MOSCOW/STOCKHOLM (Reuters) - The Russian billionaires behind MegaFon MGFON.UL, the country's second-largest mobile phone operator, are in talks to shake up ownership of the company and could revive long-held plans to list the firm on the stock market.

An initial public offering (IPO) is being considered alongside a deal for Alisher Usmanov to buy Mikhail Fridman's 25.1 percent stake in MegaFon, bankers said.

The stake sale could be a prelude to an all-Russian merger that would position MegaFon for the roll-out of next-generation 4G mobile services such as mobile broadband internet and pay-TV.

Fridman and the third shareholder TeliaSonera (TLSN.ST), which owns 43.8 percent of MegaFon, likely want to cash in an investment that pays no dividends, analysts and bankers said. The company also faces heavy costs for the launch of 4G services.

"In terms of what is important to TeliaSonera, it is how can they start to get some cash out of the business," said Andrew Hogley at investment research firm Execution.

Shares in the Nordic telecoms group were up 3.3 percent by 1708 GMT.

Analysts consider Fridman, whose Alfa-Group also owns a 25 percent voting stake in MegaFon rival Vimpelcom VIP.N, to be a financial investor who is also looking to sell.

"For Alfa, the MegaFon stake has from the beginning been a financial investment rather than a strategic one, and it may have decided that the time is ripe to exit," said Viktor Klimovich, sector analyst at VTB Capital in Moscow.

Usmanov, also a shareholder in north London football club Arsenal, has been reported to be in talks to buy part or all of Fridman's stake for up to $5 billion.

Banking sources say that, by securing control over Megafon and getting an acquisition currency in the form of listed shares via an IPO, Usmanov could then seek a merger with Rostelecom (RTKM.MM). That deal would create the right combination of mobile and fixed-line infrastructure for 4G services.

TeliaSonera confirmed on Wednesday that talks with Fridman and Usmanov about the "future ownership structure and governance of MegaFon" were under way but had not led to any agreement so far.

MegaFon, Altimo - the telecoms unit of Fridman's Alfa-Group - and a spokeswoman for Usmanov, who owns 31.1 percent of Megafon, all declined to comment on a possible IPO.

IPO BACK ON AGENDA

Several banking sources told Reuters that MegaFon is considering an IPO, although there are no concrete plans and it has not yet hired investment banks. MegaFon has previously looked at floating but never pulled the trigger because of a lack of agreement among its owners.

A MegaFon executive in 2008 said an IPO could value it at 15-20 percent less than rivals MTS (MBT.N) and Vimpelcom - now valued at $17.6 billion and $17.1 billion respectively.

Since then, MegaFon has invested heavily in network infrastructure and overtaken Vimpelcom to become Russia's No.2 operator.

"It (MegaFon) is absolutely on a par with Vimpelcom (Russian business) and MTS in Russia as an operator. It is a quality asset," said Hogley at London-based Execution.

MegaFon had 61.6 million Russian mobile users at the end of 2011, while MTS and Vimpelcom had 70 million and 57.2 million respectively. Megafon's sales last year were $8 billion.

NEXT GENERATION

Exactly how 4G mobile services will be launched in Russia remains unclear. There are two players: Scartel, which operates the Yota brand, and the less well-known Osnova Telecom, that already have licenses.

Prime Minister Vladimir Putin urged the main market players last year to invest on a pro-rata basis in Yota, which is 25 percent owned by state holding company Russian Technologies, but talks later fell apart.

On Wednesday Sergei Chemezov, the head of Russian Technologies, confirmed to Interfax that it is in talks with a number of possible investors in Scartel, including Usmanov.

Business daily Kommersant has reported that Usmanov could create a new holding company that would own stakes in MegaFon and Yota. The newspaper also said that fund Marshall Capital, a 10 percent Rostelecom shareholder, could join the alliance.

A deal for Yota would give Usmanov a stake in a company with access to frequencies for 4G, also known as Long Term Evolution (LTE) technology.

Yota's LTE spectrum would give the putative Usmanov group an advantage over its rivals, whose future growth depends on whether they can gain access to the high-speed technology.

(Additional reporting by Megan Davies, Oksana Kobzeva and Douglas Busvine in Moscow; Writing by Megan Davies and Maria Kiselyova; Editing by Douglas Busvine and Erica Billingham)

FILED UNDER: