Russia's MegaFon mobile operator to buy stake in internet major

By bne IntelliNews January 24, 2017

The shareholders of Russian mobile operator MegaFon have approved the acquisition of a stake in Russian internet services major, the company said on January 23.

MegaFon plans to buy 15.2% of capital (63.8% of voting shares) for $740mn from USM Group controlled by tycoon Alisher Usmanov.

"The approval of the deal was expected, but we see the deal as risky for MegaFon minority shareholders, given the dubious justification and synergy effects, and the threat to operator's ability to pay dividends," BCS Equity commented on January 24.

First reports of the deal appeared in November 2016. The reports implied "fairly limited downside risks for the latter's shareholders", VTB Capital commented at the time, adding that the potential deal would likely imply a premium to the market, "which might become a source of upside".

Reportedly, any deal would still see MegaFon and continue operating as separate entities. Another option is that the companies will develop a commercial collaboration targeting mobile subscribers without any equity transactions.

"We expect the potential deal to become the next trigger for Mail.Ru shares and it is likely to generate positive sentiment in the meantime," Alfa Bank commented. Group saw its revenue increase 5% year-on-year to RUB9.1bn ($146mn) in July-October, the company reported on October 26.

The massively multiplayer online (MMO) games segment was down (13% y/y) due to a high comparison base. Meanwhile, community internet value-added services (IVAS) remained weak, down 4% y/y, as the company is still searching for a good monetisation model on mobile. Ad revenues remained the key growth driver, up 21% y/y, while, service-wise, the key driver is still social network VKontakte, up 39.3% y/y to RUB2.1bn.

Sberbank CIB in October 2016 upgraded Mail.Ru Group to Buy on valuation grounds and ahead of what expected overall improvement in January-June 2017.

"The weaker performance in both games and community internet value-added services (IVAS) has been a drag on both revenues and sentiment, but we believe the company has all the prerequisites for a turnaround - in games this will come mainly from boosting international revenues," the investment bank said on October 10.

Related Articles

Kazakhstan cuts grain export forecast as Russia squeezes it out of markets

Kazakhstan has cut its grain export target for the 2017/2018 marketing season to 8mn tonnes of grain from the previously expected 9mn tonnes, Deputy Agriculture Minister ... more

Iran rejects idea that a Caspian Sea settlement is in sight

Iran’s foreign ministry has rejected the suggestion that the five littoral states that share the shore of the Caspian Sea have largely agreed to delineate its maritime borders and settle their ... more

Russian embassy suggests Turkish Stream as a solution to air pollution in Macedonia

The Russian embassy in Skopje has suggested the Turkish Stream pipeline as a solution to the extreme air pollution in Macedonia, a problem which the country, particularly the capital, has ... more