Russia's Sistema may merge MTS, Comstar

MOSCOW (Reuters) - Russian services conglomerate Sistema (SSAq.L) may one day merge telecoms affiliates Mobile TeleSystems (MBT.N) and Comstar (CMSTq.L), Chairman Vladimir Yevtushenkov told Reuters on Tuesday.

Such a move would make it possible to capitalize on the convergence of mobile and fixed-line services but would be premature now, Yevtushenkov, who owns 62 percent of Sistema, said at the Reuters Russia Investment Summit.

"Sooner or later it should become a single all-embracing company," said Yevtushenkov, who is 11th on Forbes magazine's list of rich Russians, with a fortune estimated at $9.1 billion.

"But to say that we need to do this today would be premature. No, we aren't ready for that," he said.

Sistema owns 52.8 percent of MTS, Russia's leading mobile phone company, and 51 percent of fixed-line firm Comstar. Both Sistema and Comstar are listed in London, while MTS American depositary receipts trade in New York.

"There exists a theory of convergence, the understanding that for an individual it makes no difference where he receives services. He should understand just one thing -- that he can receive them quickly and comprehensively," said Yevtushenkov.

MTS already plans to bundle services with Comstar and will offer them through a single billing system planned for launch around the end of the year, MTS Chief Executive Leonid Melamed told the Summit on Monday.

CONGLOMERATE DISCOUNT

Sistema, which also spans technology real estate, retail, banking, tourism and healthcare, suffers a "conglomerate discount" that has left its market capitalization around 30 percent below a sum-of-the-parts valuation.

Its shares have underperformed those of its main telecoms units this year and, analysts note, Sistema's market capitalization of $12.4 billion is about the same as the value of its MTS stake.

"Bearing in mind that we don't plan to sell shares tomorrow or the day after, this undervaluation doesn't matter much to us. But it is an embarrassment," Yevtushenkov said.

Yevtushenkov has considered spinning off subsidiaries to create shareholder value, but he saw no pressing need to do so because Sistema can raise debt financing to grow its business.

Instead, Sistema will focus on its non-public units to boost the value of the holding company. He ruled out holding an initial public offering of shares in banking unit Moscow Bank for Reconstruction and Development.

INTERNATIONAL AMBITIONS

Yevtushenkov approached Deutsche Telekom (DTEGn.DE) last year in an attempt to create an international phone company that would have been second only to Vodafone (VOD.L) in subscribers, but was rebuffed.

"I had a wish to create a gigantic global company," he said. "But ... you can only do such things with huge political support. We aren't examining it now. We are quite calm. It was an initial discussion."

Sistema has around $7 billion of debt on its balance sheet, and Yevtushenkov said it would be possible to raise another $10 billion to $12 billion if the right acquisition opportunity arose.

But, he said, prices for telecoms assets are extremely high at the moment, making deals prohibitively expensive. He called the $18.8 billion price paid by Vodafone for India's Hutchison Essar earlier this year "crazy."

"There are no attractive assets on the market," he said. "This doesn't just affect us -- look at the largest telecoms companies."