December 23, 2016 / 9:46 AM / 2 years ago

Russia's Megafon to buy majority stake in for $740 million

MOSCOW (Reuters) - Russian mobile operator Megafon (MFON.MM) has agreed to pay $740 million to buy a controlling stake in internet group (MAILRq.L) from billionaire Alisher Usmanov, who is an investor in both companies.

A woman walks past the logo of Russian Internet group at its headquarters in Moscow, Russia, April 5, 2016. REUTERS/Maxim Shemetov

Megafon said it hoped the deal would provide mobile phone users access to a wide range of content through platforms while returning Megafon “to sustainable growth”. Megafon is Russia’s second biggest mobile company.

Megafon and Russian rivals have seen their sales growth fall close to zero in a saturated market and are looking at Internet-based partnerships as they seek to move away from a traditional telecoms business structure.

Under the terms of the proposed transaction, Megafon would buy a 63.8 percent voting stake in from Usmanov, paying $640 million on completion of the deal and a further $100 million a year later.

The deal, which suggests a 24-percent premium to the share price as of Dec. 22, does not require Megafon to make a mandatory buyout offer to minority shareholders, Megafon said in a statement., which owns the three largest Russian-language social networks and an online games business, also has South Africa’s Naspers (NPNJn.J) and China’s Tencent Holdings Ltd (0700.HK) among its shareholders.

The deal is expected to be funded by cash and rouble-denominated debt and Megafon’s ability to pay dividends will not be affected, it said.

Shares in Megafon, in which Usmanov’s holding company has a 56 percent stake, fell 2.4 percent after the news while stock was largely flat.

Megafon said it expected to achieve “significant synergies for both companies” through the deal. Among other initiatives, it will see the companies launch a special VKmobile offering for users of VK social network, Russia’s largest.

Megafon will consolidate financials but the internet company will continue to operate as a standalone listed entity.

If approved by shareholders and regulators, the deal is expected to close in the first quarter of next year.

Last month, Megafon said it was in talks with the shareholders of that could lead to it taking a stake in the Internet group.

Editing by Keith Weir

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