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M&A: Joint venture of Tele2 and Rostelecom will have to wait

The setting-up of Rostelecom's and Tele2 Russia's joint venture has been suddenly hampered. According to the Kommersant, the parties have not come to terms on the 450 MHz frequency band development.

On June 27, the modification of the JV setting-up agreement has been removed from the agenda of Rostelecom's Board of Directors.

A source related to the deal process informed that the parties had missed the accommodation deadline for a number of matters concerning the future relations of Tele2 and Rostelecom. They will additionally need from two weeks to one month to compromise their positions.

Under the existing version of the agreement, the joint venture was obliged to conclude an MVNO agreement for the right of use the frequency band with Rostelecom. When adjusting the terms of the agreement, the parties found out that the joint venture would have to incur heavy expenses for keeping the 450 MHz band licenses valid, a well-informed source stated for the Kommersant. The reason is that on December 11, 2013, Russia's State Commission for Radio Frequencies made a decision on additional encumbrances to be imposed on an operator wishing to have its license modified or extended.

Given the magnitude of potential expenses, the absence of funding sources, and the lack of certainty as to the 450 MHz network business plan, it is proposed that the provisions specifying the parties' rights and obligations in respect of this frequency band be removed from the joint venture agreement, the paper's source commented.

OJSC Rostelecom (tax number: 7707049388) is the national long-distance communication operator leading in the amount of long-distance domestic and international data traffic and operating the land-line network of television and broadcasting channels. In April 2011, Rostelecom absorbed interregional communication companies Centertelecom, Sibirtelecom, Dalsvyaz, Uralsvyazinform, VolgaTelecom, SZT, YTK and Dagsvyazinform. Total length of Rostelecom's backbone network all over Russia is about 500,000 km. The company's infrastructure reaches 43 million Russian households.

The company's authorized capital is RUB 7.965 million represented by 2,943,258,269 common and 242,831,469 preferred shares at par value of RUB 0.0025.

Rostelecom's major shareholder is the government. Rostelecom's securities are traded on the MICEX Stock Exchange in Russia as well as in the electronic OTC trading system OTCQX in the USA.

IFRS net profit of Rostelecom for Q1 2014 grew by 8% to RUB 6.9 billion from RUB 6.413 billion the year before. Revenue was RUB 80.406 billion increasing by 1% from RUB 79.559 billion. Revenue from continuing operations (fixed-line business) grew by 4% to RUB 73.2 billion. OIBDA increased by 10% year-on-year to RUB 26.5 billion from RUB 29.4 billion. OIBDA margin was 33% compared with 37% in the first quarter of 2013.

According to the DataCapital information retrieval system, RAS net profit of OJSC Rostelecom for Q1 2014 grew by 45% to RUB 11.082 billion from RUB 7.64 billion the year before. Revenue increased by 8.21% to RUB 73.304 billion from RUB 67.744 million, GP and sales profit decreased by 15.86% to RUB 11.182 billion from RUB 13.291 billion. Pre-tax profit went up 23% to RUB 11.798 billion from RUB 9.599 billion.

AK&M "M&A Market"

"AK&M", 04.07.2014 18:10


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