SUMMARY: Rostelecom signs framework agreement on JV with Tele2
MOSCOW. Feb 6 (Interfax) - Rostelecom has signed a framework agreement with Tele2 Russia Holding to integrate mobile communications assets, Rostelecom said in a press release. The assets that Rostelecom is contributing to the joint venture, LLC T2 Rus Holding, have an enterprise value of $3.5 billion. Rostelecom also said the joint venture's head would soon be announced and that its board would soon be formed.
The agreement
Rostelecom said earlier that its board of directors on February 5 approved a frame agreement with Tele2 Russia Holding and LLC T2 Rus Holding.
Rostelecom will hand all its own mobile communications assets, including 3G and LTE licenses, to the joint venture in exchange for a 45% stake, and Tele2's current owners will contribute the cellular provider's whole business for a 55% stake.
"The framework agreement defines the operating procedure for Rostelecom to integrate its mobile assets into the JV. It also outlines the operational interaction of the two parties in the interim period before the deal is closed, which allows us to launch commercial integration as quickly as possible without waiting for the deal to be fully completed," Maria Florentieva, Rostelecom's Vice President of Strategic Planning and Investor Relations, was quoted as saying.
During the first stage of the transaction, which is expected to close this spring, Rostelecom will be putting into the JV the mobile assets CJSC AKOS, CJSC Volgograd-HMS. CJSC NSS, CJSC ETK, CJSC BVK, CJSC BIT, and CJSC Sky Link. When the first stage has been concluded, Rostelecom will receive 45% voting rights and 26% economic interest in T2 RTK Holding.
The joint venture will receive more than $1 billion in debt from Rostelecom's mobile assets.
In addition, the two parties will enter into MVNO agreements, licensing agreements regarding the two companies' brands, as well as a range of agreements for the transitional period. According to these agreements, Rostelecom will provide services for the JV during a certain period of time after the first stage has been completed. The first stage will also involve signing a participation agreement defining matters which include the JV's corporate governance system.
The second phase of the transaction will be completed within the year. Rostelecom will raise its economic stake in the JV to 45% once RT-Mobile has been transferred into it, in the second stage of the deal. RT-Mobile will obtain mobile assets directly owned by Rostelecom, federal LTE licenses (2.3-2.4 GHz, 800 MHz and 2.5-2.7 GHz), a mobile business in the Urals, equipment and contracts.
The united operator might conduct an IPO over the course of three years, in which case Rostelecom will have the right to increase its stake to controlling, Rostelecom's president, Sergei Kalugin, has said.
Management
The head of the joint venture has not yet been announced. Reports have said it could be Tele2's current chief, Alexander Provotorov, but the Russian Federal Property Agency (Rosimuschestvo), a major Rostelecom shareholder, blocked this.
In keeping with the new company's shareholder agreement, the decision to appoint its head will be based on proposals by Tele2 co-owners VTB (MOEX VTBR) and firms owned by Yury Kovalchuk and Alexei Mordashov. Rostelecom may veto these proposals twice if it does not like them, but not a third time.
Sources with knowledge of the situation have told Interfax that Mikhail Noskov, a member of the board of directors at Yuri Kovalchuk's Bank Rossiya and a former top manager of steel giant Severstal , might head the joint venture.
Sources have told Interfax that Alexander Provotorov would remain at the company and might be responsible for day-to-day management of the joint venture, which will be known as T2 RTC Holding.
Yury Soloviev, first deputy president-chief executive of VTB, said at a conference call on February 6 that the shareholders were agreeing on a candidate for the joint venture's chief now and would make an announcement in the next few days.
"We'll make an announcement fairly quickly," he said.
Solovyev also said Rostelecom representatives would head the main committees under the joint venture's board of directors. These include committees for personnel, audit and expenditure.
The shareholders will be represented on the board in proportion to their stakes in the joint venture.
"The board will have representatives of Bank Rossiya, Severstal, Rostelecom and VTB," Solovyev said.
"The state will have an absolute majority via indirect control - seven of the 11 directors," he said, adding that the state controls both VTB and Rostelecom at present.
The board will be formed in February.
It could be said the joint venture has started to exist from this moment, Soloviev said. It should have fully evolved by the end of this year. The new company will provide services in more than 60 Russian regions and have a subscriber base of around 38 million people.
Other details
A source has told Interfax that the frame agreement would also allow VTB to buy up to 35 billion rubles worth of Rostelecom shares at market price. The state bank could buy up to 12% voting shares in the telco. Rostelecom will have an option to buy the shares back after two or three years, the Kommersant newspaper has said.
Rostelecom might use the VTB money to buy back its own shares from minority shareholders who dissented against spinning the company's mobile communications assets off to RT Mobile at a shareholders' meeting on December 30.
Rostelecom owns 8.07% of its shares, 7.2% of which are ordinary and 17.5% preferred, while LLC Mobitel, which is owned by the telco, holds 8.07% (9.38% ordinary and 12.55% prefs). Mobitel did not vote on the spin-off at the shareholders meeting, and may subsequently tender its shares in the Rostelecom buyback.
The buyback price is set at 123.93 rubles per ordinary share and 87.8 rubles per preferred share.
The size of the buyback is limited by Russian legislation to 10% of net asset value. Rostelecom is basing the buyback amount on net assets as of October 31, 2013, which were 228.9 billion rubles, so, in keeping with the law, the buyback can total no more than 22.9 billion rubles.