In what could be the beginning of an international imbroglio, the Swedish telecom group Tele2 AB announced Wednesday that VTB Group, a leading state-owned Russian bank, would acquire its subsidiary Tele2 Russia, for $3.55 billion in cash and debt.
With 2G licenses to operate in 43 regions, Tele2 Russia stands as the country’s 4th largest mobile operator. In 2012, it generated $1.9 billion in revenues and $300 million in net profit.
But less than 24 hours after its announcement, the acquisition was declared illegitimate by billionaire Mikhail Fridman’s Alfa Group, which controls VimpelCom, an international mobile operator with leading positions in Russia.
Last year, Alfa Group’s investment arm A1 “put forward an offer to acquire Tele2 Russia, pricing it significantly higher than the deal [with VTB]. The offer was rejected in October by Morgan Stanley, advisors to Tele2, without reasonable explanation or discussion,” A1 stated.
From counter offer to takeover bid
“Having reviewed the conditions of the expected deal with VTB, we can state that it undermines the interests of minority shareholders in Kinnevik and Tele2,” A1 concluded logically. “We also believe that the minority shareholders of Kinnevik and Tele2 have the right and a good legal basis to question management and Morgan Stanley regarding the way the process to sell the company was organized and the fairness of the value of Tele2 Russia as represented in the proposed deal with VTB.”
Not only did A1 announce it is willing to pay from $3.6 to $4 billion in cash for the asset, it is ready to acquire the remaining assets of the Swedish Group “over a short period of time.”
Tele2 Russia has also been eyed by MegaFon and MTS, two other leading Russian mobile operators, and by Rostelecom, the national telecom operator.
Even if Alfa fails to block the deal, VTB may not keep its new asset for a long time. The bank told Sberbank analysts that it intends to resell the telco before the end of the year, the news agency RIA Novosti reported.
LTE bitterness
Whoever the eventual new owner will be, the Swedish company’s decision to sell its Russian subsidiary comes as no surprise. It has been a while since some industry analysts began doubting Tele2’s prospects in Russia. After failing to receive 3G and LTE licenses, the company is doomed to remain a 2G-only operator without broadband activity. That could seriously hamper its profitability in the middle term – a prospect which probably triggered the Swedish shareholders to sell the company.
In his official statements about the transaction with VTB, Tele2 AB’s President and CEO Mats Granryd presented Sweden, the Netherlands, Norway, and Kazakhstan as the core markets of his company.
