STOCKHOLM/MOSCOW (Reuters) - Shareholders in Russian mobile phone firm MegaFon MGFON.UL agreed a deal that gives control to the country’s richest man, Alisher Usmanov, and nets Nordic telecoms firm Teliasonera TLSN.ST a return of over 18 times its original investment.
Tuesday’s deal ends a long-running dispute over strategy and governance at MegaFon with an agreement to pay out a $5.15 billion dividend to all shareholders, and sees the exit from the business of Russian billionaire Mikhail Fridman.
Fridman will sell his 25.1 percent stake for a total of $5.2 billion, with 10.7 percent going to Usmanov and the rest back to the company — Russia’s number two mobile industry player.
Teliasonera will sell 8.2 percent of its 43.8 percent stake to Usmanov for $1.45 billion, and cut its holding further under MegaFon’s plan to launch what would be the biggest IPO in London since commodities house Glencore (GLEN.L) listed there last May.
“I’m extremely pleased with this deal,” Teliasonera CEO Lars Nyberg told a news briefing. “It resolves a long-term issue — that we’ve never seen a dime from MegaFon.”
Teliasonera shares climbed by as much as 8 percent as investors welcomed news that it would finally be able to monetize an investment first made in Russia as long ago as 1994 while still keeping a significant interest in the business.
“Management’s ambition has been to achieve liquidity in terms of dividends, and a liquid asset which you could exit from if you wanted to. They have achieved this now,” said Peter Kurt Nielsen at Chevreux.
“They have clearly realized a lot of value.”
The deal will end years of shareholder in-fighting that saw Fridman clash with Russia’s former Telecoms Minister Leonid Reiman over ownership of his stake, in a battle that landed in the Swiss courts in 2006.
Teliasonera, meanwhile, has had its own run-ins with Fridman in a separate ownership and strategy dispute at their troubled Turkish venture Turkcell (TCELL.IS).
As a result of Tuesday’s deal, Usmanov will raise his ownership in MegaFon to 50 percent plus one share, Teliasonera will own 35.6 percent and MegaFon will hold 14.4 percent in treasury stock.
In a second stage, Teliasonera will reduce its stake to 25 percent plus one share through an initial public offering of up to 20 percent of MegaFon - including the sale of treasury stock - that sources said could raise $4 billion.
Analysts said MegaFon’s plans to pay out the higher of 50 percent of net income or 70 percent of cash flows in regular dividends could attract IPO investors from Russia’s other two mobile stocks - MTS (MBT.N) and Vimpelcom VIP.N.
“What is very important is ... that the shareholders have come to an agreement on the main points - including future dividend payments,” said Viktor Klimovich, telecoms analyst at VTB Capital in Moscow.
Tuesday’s deal values MegaFon at a premium of as much as 15 percent to MTS, which now trades at 2011 enterprise value/EBITDA earnings multiple of 5.65 times, Klimovich estimated.
Teliasonera said the dividend and stake sale would yield a “fantastic” return on Teliasonera’s investment in MegaFon of 1.2 billion crowns ($177 million), with proceeds to mainly be used to pay down debt.
The dividend and payment for its stake are worth a total 22 billion crowns ($3.25 billion) — equivalent to about seven months of profits as measured by EBITDA in the company’s latest quarterly results.
Teliasonera will pay $200 million to Fridman as part of the transaction. It will not be liable to any capital gains tax on either its stake sale or the planned IPO, the company said.
Cementing Usmanov’s control will position MegaFon for the costly roll-out of next-generation 4G mobile services in Russia, while Teliasonera will as a minority investor in a listed company have greater ability to realize value and, if it wants to, sell out.
Reuters reported last week that MegaFon had borrowed $4.5 billion to help finance a buyout of Fridman’s 25.1 percent stake, bringing the operator closer to a possible London IPO of a 20 percent stake later this year.
Teliasonera said Fridman’s company, Altimo, will exit from MegaFon and sell its 25.1 percent ownership in two parts: 14.4 percent to a subsidiary of MegaFon for $2.16 billion while the remaining 10.7 percent will be sold to Usmanov’s AF Telecom for $1.61 billion.
The proposed London IPO of a stake of up to 20 percent would be conducted “as soon as practically possible”. TeliaSonera and MegaFon will sell up to 10.6 percent and 9.4 percent, respectively, to investors.
TeliaSonera also has an option to sell 10.6 percent of its shares to Usmanov if MegaFon fails to do an IPO by the end of 2014, based on an estimate of fair market value.
MegaFon will retain 5 percent of its stock in treasury with a view to possible merger activity, with market attention focused on a possible deal with Scartel, which already operates 4G services in parts of Russia under the Yota brand.
(This story is corrected to removes reference to IPO in analyst quote on valuation in paragraph 15)
Reporting by Niklas Pollard and Simon Johnson in Stockholm and Maria Kiselyova in Moscow; Writing by Douglas Busvine; Editing by Andrew Callus and David Holmes