Rostelecom board approves 100% Tele2 Russia takeover

15 Nov 2019

The board of directors of Russian state-backed national telco Rostelecom has approved a transaction to acquire a 55% stake in its associated mobile operator Tele2 Russia to increase its ownership from 45% to 100%. A press release declared that ‘the transformational deal strengthens Rostelecom’s position in the fast-growing mobile segment and creates the leading integrated digital provider of fixed line and wireless solutions in Russia … the enlarged company will become the only player in the market to offer a unified and fully-converged offering nationwide.’ The move recently received government and antimonopoly authority approval.

Rostelecom expects to purchase the 55% stake in Tele2 Russia (T2 RTK Holding) in three parts, valued at a total of approximately RUB132 billion (USD2.1 billion):

• 10% through an exchange of 10% of ordinary Rostelecom shares held by Mobitel (Rostelecom subsidiary) at a transaction value of RUB24 billion

• 27.5% using cash proceeds received from an additional share issue of Rostelecom ordinary shares awarded to VTB bank at a price of RUB93.21 per share, carrying a value of RUB66 billion

• 17.5% for cash at a valuation determined by an independent appraiser, expected to cost RUB42 billion.

Once the deal is complete, Rostelecom intends to:

• keep Tele2 Russia as a separate legal entity and maintain its existing brand

• develop new convergent service propositions to stimulate consumption and accelerate revenue growth as a result of higher cross-selling potential between segments, while generating higher ARPU and decreasing churn

• utilise Tele2’s infrastructure to enable Rostelecom to optimise its network maintenance costs; for specific client groups and territories, the possibility exists to shift from fixed line to wireless solutions

• jointly develop 5G infrastructure

• jointly develop projects as part of the state-backed Digital Russia programme, including informational infrastructure projects, smart city solutions, unmanned vehicle transportation and big data analysis

• establish a joint integration committee to extract synergies which deliver incremental value for the company while maintaining the ambitious pace of Tele2’s development

• reduce operating costs by increasing the scale of the business and by optimising external costs and business processes

• accelerate OIBDA growth, and increase margins and cash flow generation

• preserve the status of Tele2’s existing management team and approve a new ‘motivation plan’

• renew and unveil the Rostelecom group strategy within the first half of 2020.

Russia, Rostelecom, Tele2 Russia