* Buyer is Russia's No. 2 bank, VTB Group
* Deal values Tele2 Russia at $3.5 bln
* Tele2 to focus on Sweden, Netherlands, Norway, Kazakhstan
By Simon Johnson and Megan Davies
STOCKHOLM/MOSCOW, March 27 Nordic telecoms
company Tele2 said on Wednesday it would sell its
Russian operations to bank VTB Group in a $3.5 billion
deal that could ease competition in the market.
Tele2 has been rumoured for some time to be considering a
sale of the Russian unit as it does not have a 3G or 4G license
in Russia and analysts have said that without the ability to
offer data services, its growth prospects were limited.
"We believe that Tele2 Russia is a good financial investment
which will be growing faster than the market," Andrey Kostin,
VTB President and Chairman said in a statement. "VTB plans to
cooperate with financial and strategic partners in order to
further develop it's investment".
VTB is Russia's No. 2 bank and has made a number of private
equity investments such as buying a stake in hypermarket chain
Lenta, which it aims it sell by 2015.
Private equity investors typically buy with a 3-5 year
timeframe in mind and seek to exit their portfolio companies
either by a trade sale or an IPO.
It is unclear how long VTB wants to keep Tele2 as an
investment and the bank was not immediately available to comment
on its plans for the business.
Analysts said VTB could break up Tele2 Russia as none of the
major operators could buy all of it for competition reasons.
"Looks like VTB will resell it by parts as none of the
operators want it to buy (it) fully," Alexander Vengranovich at
brokerage Otkritie in Moscow said in an emailed comment.
"It is positive as the competitor could be eliminated."
Tele2 is Russia's fourth-biggest mobile operator with around
23 million subscribers in 2012 after MTS, Megafon
Russia's market was shaken up last year when MegaFon - the
second biggest operator - controlled by the country's richest
man Alisher Usmanov, went public in London in an IPO. Investors
have shown interest in the stock, currently trading at $30.90
per share, up from its $20 IPO price.
Russian telecoms companies are benefiting as Russia's middle
class grows and disposable incomes rise, giving them the chance
to boost profits by selling add-on services based on fast
wireless access to the internet.
Ownership of smartphones designed to surf the web also
remains low, promising growth in data which should offset
typically flat revenues from voice calls made by mobile-loving
Russians, who own an average of 1.6 SIM cards per person - more
than most other countries.
After years of rapid growth, however, Tele2 has been facing
The Russian market has matured, competition has intensified
and Tele2 has lagged behind in offering data services to the
growing numbers of smartphone users.
It had been pinning its hopes on authorities allowing
operators to use existing radio frequencies to offer the higher
speed connections needed for mobile internet access, but this
has so far failed to materialize.
In the fourth quarter, Tele2 warned that it faced slower
Tele2 said the deal comprised $2.4 billion in equity and
$1.15 billion in net debt.
Tele2's Russian unit had a core profit (EBITDA) of 4,744
billion Swedish crowns ($728 million) in 2012, pricing the deal
at 4.9 times EBITDA, the company said.
MTS has an enterprise value of 4.2 times EBITDA, and
Vimpelcom is at 4.9 times, according to Reuters data.
The Swedish company said it would now focus on growth in its
existing core markets - Sweden, the Netherlands, Norway and
Kazakhstan. It will use the proceeds from the sale to buy back
shares worth around 12.5 billion Swedish crowns ($1.92 billion).
Tele2 also issued new growth targets, saying it expected
compound annual revenue growth of 5-7 percent up to 2015 and
compound annual growth in earnings before interest, tax,
depreciation and amortization of 10-12 percent over the same