VolgaTelecom changed its mind about exchanging shares with SMARTS in the Ulyanovsk and Orenburg GSM operators

The interregional telecom operator VolgaTelecom, which unites GSM assets on the basis of its own CJSC Nizhegorodskaya Sotovaya Svyaz (NSS), intends to refuse to join dependent companies in Ulyanovsk and Orenburg to the NSS. VolgaTelecom believes that SMARTS, a co-owner of Ulyanovsk-GSM and Orenburg-GSM, is announcing a “deliberately inflated price” for its shares in these assets. Analysts call the decision of the interregional operator a form of pressure on SMARTS, which intends not to sell its own assets, but to exchange stakes in mobile operators with VolgaTelecom.

The director said that the consolidation of GSM assets of OJSC VolgaTelecom on the basis of CJSC Nizhny Novgorod Cellular Communications (NSS) as part of the creation of a single Volga region cellular operator will take place without the companies Ulyanovsk-GSM and Orenburg-GSM. Department of Information and Analytical Support of VolgaTelecom Tatyana Zotova. According to Kommersant, negotiations between VolgaTelecom and ZAO SMARTS, co-owner of Ulyanovsk-GSM and Orenburg-GSM, on the conditions for obtaining full control over one of these assets or over two companies at once did not produce a positive result. Ms. Zotova noted that the parties did not agree on the price of the issue, since VolgaTelecom, “caring for the interests of shareholders, will never purchase assets at a deliberately inflated price”: “VolgaTelecom will not consolidate cellular assets with its participation at any cost ( The future operator should include companies in which VolgaTelecom owns 100% of the shares - Kommersant).” VolgaTelecom did not comment on the possibility of repeated negotiations with SMARTS.

Kommersant OJSC VolgaTelecom is the largest telecommunications operator in the Volga region and is part of the Svyazinvest holding. The company was created in 2002 as part of the restructuring of the telecommunications industry. VolgaTelecom operates in 11 regions of the Volga Federal District. The company's net profit, according to preliminary data, in 2006 amounted to 2 billion 412.4 million rubles, which is 6.9% more than in 2005. EBITDA increased by 4.7% to RUB 7 billion 82.4 million. The company's revenue at the end of 2006 amounted to 21 billion 691.2 million rubles, which is 1.6% more than in 2005. VolgaTelecom owns 100% of the shares of NSS CJSC, RTCOM CJSC (Mordovia), Saratov Mobile CJSC, Penza Mobile CJSC and Chuvashia Mobile CJSC. In OJSC Tatinkom-T, VolgaTelecom owns 50% plus one share, in CJSC Ulyanovsk GSM the company owns 60%, in CJSC Orenburg GSM - 51%. The SMARTS group of companies, headed by SMARTS CJSC, unites operators providing cellular communication services in 16 regions of the Russian Federation. The group's subscriber base is 3.6 million people. At the end of 2006, the group's consolidated revenue amounted to 6.18 billion rubles, ZAO SMARTS - 2.9 billion (an increase compared to similar indicators in 2005 - more than 15%). The main shareholder of SMARTS CJSC is Gennady Kiryushin, Chairman of the Board of Directors of the company. For the first time, plans to merge the assets of cellular communication companies into a separate division of VolgaTelecom were announced in November 2004. As part of the creation of a single Volga region GSM operator, Volga Telecom OJSC intended to unite its own subsidiaries and dependent companies under one brand: RTKOM CJSC (Mordovia), Saratov Mobile CJSC, Penza Mobile CJSC, Chuvashia Mobile CJSC, Chuvashia Mobile CJSC Ulyanovsk GSM", CJSC Orenburg GSM, OJSC Tatinkom-T and the Elin company (VolgaTelecom branch in Mari El), while, if possible, increasing the share in affiliated companies to 100%. The merger process was planned to be completed by mid-2007, but due to the decision of the board of directors of VolgaTelecom to increase the company's controlling stake in Tatinkom-T until the complete consolidation of assets, it will apparently be completed only in the fall.
In SMARTS itself, VolgaTelecom’s statement about the “deliberately inflated price” caused bewilderment. “The asset sale project was considered several years ago. In 2006, we discussed another option - an exchange of assets, which assumed an identical settlement system for all participants. So if we inflated prices, it turns out that the other side did the same,” explained Andrey Girev, General Director of SMARTS CJSC. It is worth noting that SMARTS CJSC has repeatedly said that they would not be against the sale of their shares to VolgaTelecom, or their exchange. According to Mr. Girev, one of the options that would suit SMARTS would involve a scheme in which VolgaTelecom would increase its participation in Ulyanovsk GSM to 100% (SMARTS has its own branch in Ulyanovsk - Kommersant), and SMARTS would increase to complete its package in Orenburg GSM (SMARTS does not have a license to operate in Orenburg - Kommersant).
Analysts note that VolgaTelecom's decision is not final and may be a form of pressure on SMARTS. Thus, an expert at the Finam-Information Technologies Foundation, Viktor Galenko, suggested that now the management of VolgaTelecom “assesses its costs for including Ulyanovsk and Orenburg GSM operators in the new company as not covering the gains from their accession.” Mr. Galenko does not rule out that the price declared by SMARTS for its shares in companies may be high “precisely based on trade”: “Interest in these operators was shown, for example, by Mobile Telesystems OJSC and VimpelCom OJSC, who also wanted to increase shares in the Orenburg and Ulyanovsk markets.”
Experts call Ulyanovsk GSM and Orenburg GSM quite attractive assets for acquisition. According to Finam Investment Company, the estimated cost of 100% shares of Orenburg GSM is $45 million, Ulyanovsk GSM is about $80 million.
According to Json&Partners Company (J&P Company), at the end of 2006, the share of Ulyanovsk GSM in the regional cellular communications market was 28%, the share of Orenburg GSM was 9%. At the same time, analysts say that cellular penetration rates in Orenburg and Ulyanovsk have not yet exceeded 100%. Thus, according to J&P Company estimates, the level of cellular penetration in the Ulyanovsk region at the end of 2006 was 84%, in the Orenburg region - 89%. In this regard, cellular operators have a real opportunity to increase their own presence in the markets of these regions.
ELENA KOLYCHEVA, Samara;
MARIA KUZNETSOVA

Kommersant (N. Novgorod) No. 56 from 04/05/2007

Communication without exchange