MegaFon to acquire 100% interest in Scartel / Yota to strengthen MegaFon’s leading position in 4G / LTE market in Russia

MOSCOW, Russia (08 August 2013)  — Open Joint Stock Company «MegaFon» («MegaFon», or the «Company») (LSE: MFON), a leading Russian universal telecommunications operator, announces that MegaFon’s Board of Directors has recommended that MegaFon shareholders approve the acquisition of a 100% interest in Scartel / Yota («Scartel/Yota») from Garsdale, MegaFon’s controlling shareholder, at a vote scheduled to be completed on 12 September 2013.

Scartel / Yota is the only operator in Russia with an up-and-running multicity 4G / LTE network. It owns 2×30 MHz nationwide 4G / LTE spectrum in the 2.5–2.6 GHz frequency band and a network covering 27% of the Russian population. As at 30 June, 2013, Scartel / Yota had c. 648,000 B2C and B2B 4G / LTE data subscribers.

The Board determined that the recommended acquisition is consistent with MegaFon’s data leadership strategy and provides MegaFon with a number of expected strategic benefits:

  • Significant increase in network capacity and quality, that will strengthen MegaFon’s leadership position in the fast growing mobile data market through enhanced overall service offering and customer experience
  • Ability to carry out 4G / LTE rollout with reduced capex and opex per Mbps of data transmission capacity because of enhanced spectrum position
  • Considerable cash flow savings in network rollout and maintenance driven principally by elimination of significant current and future operating costs

«The acquisition of Scartel/Yota and combination of its resources with MegaFon would become a new stage of 4G network development. Within the shortest possible period of time we will be able to provide access to high-speed Internet in both large cities and rural areas across Russia. Enhanced spectrum position will enable us to provide our customers with improved service quality. The transaction allows us to strengthen our leading position in the 4G / LTE market in Russia and achieve significant improvement in cash flow in terms of 4G / LTE network rollout and maintenance going forward.», said Ivan Tavrin, CEO of MegaFon.

The total consideration for the acquisition is $1,180 million (the «Equity Consideration») plus the assumption, purchase or pay off of the «Net Debt» of Scartel/Yota at closing.

  • The $1,180 million Equity Consideration will be paid on a deferred basis as follows: 50% of the consideration ($590 million) plus interest at 6% p. a. from closing until payment date will be paid on the 1st anniversary of closing while the remaining consideration ($590 million) plus interest at 6% p. a. from closing until payment date will be paid on the 2nd anniversary of closing.
  • The amount of the Net Debt of Scartel/Yota is capped at $600 million plus $20 million per month from 1 July 2013 until closing. Net Debt consists of: loans to Scartel/Yota made by the selling shareholder and its affiliates (approximately $400 million as of 30 June 2013 — the Company will purchase the amount outstanding at closing at par) and third party loans, but excludes working capital liabilities.
  • The closing of the transaction is subject to customary conditions, as well as the 4G/LTE licenses continuing to be in full force and effect. In addition, in the event that any MegaFon claim (including any claim relating to litigation questioning the validity of any of the 4G/LTE licenses held by Scartel/Yota) arises prior to any payment of the Equity Consideration, the amount of that claim can be held back from such payment until such claim is satisfactorily resolved.

Additional information related to the acquisition, including limited financial information regarding Scartel/Yota, will be available on the Company’s website at: ir. megafon. com, ref: Q2 / H1 2013 Results of MegaFon Presentation slides.

The Board does not expect the transaction to have a material impact on MegaFon’s guidance for 2013 revenue growth, OIBDA margin and capex, or on dividend policy.

Because this is an interested party transaction under Russian law, Garsdale, MegaFon’s controlling shareholder, and its affiliates who hold MegaFon shares, will not vote on the transaction, and the transaction will be duly approved if it receives the affirmative vote of a majority of all other MegaFon shareholders. An Extraordinary General Shareholder Meeting («EGM») to vote on this matter is scheduled for September 12, 2013. MegaFon’s largest minority shareholder, TeliaSonera, which holds an approximately 25.17% interest in MegaFon, has expressed its intention to vote in favour of the transaction at the EGM.

All necessary regulatory approvals to complete the transaction, including approval by Federal Anti-Monopoly Service (FAS), have been received, and the transaction is anticipated to close at the end of September 2013.

For More Information:

OJSC MegaFon
Media: Peter Lidov Tel: + 7 926 200 6699
Investors: Dmitry Kononov Tel: + 7 926 200 6490


Scartel / Yota is the only operator in Russia with an up-and-running multicity 4G / LTE network. It provides mobile internet services to 605k B2C and 43k B2B customers as at 30 June 2013 (c.82% of total revenues), as well as other telecom operators on an MVNO basis (c.6% of total revenues). Currently, MegaFon is the only operator with an MVNO agreement in place with Scartel. The company also sells user devices (65% USB dongles, 35% of Wi-Fi routers) through its own retail network consisting of 69 points of sales (c.10% of total revenues).
The key assets of Scartel / Yota include 2×30 MHz nationwide spectrum in the 2,500- 2,530 MHz / 2,620–2,650 MHz frequency band and network infrastructure covering over 30 regions in Russia or c.27% of Russian population as at 30 June 2013.

MegaFon OJSC is a leading Russian universal telecommunication service provider, operating in all segments of the telecommunications markets in Russia. MegaFon was incorporated in June 1993 as CJSC «Northwest GSM» and renamed OJSC «MegaFon» in 2002. MegaFon was the first operator with a network covering all regions of Russia. The Company and its subsidiaries have licenses to operate in all of the Russian regions and in the Republics of Abkhazia, South Ossetia and Tajikistan. The Company was the first in Russia to launch 3G for commercial operations and is currently in the number one position among all operators in the provision of mobile Internet, and in the number two position as to the number of active subscribers in Russia.

In 2009, MegaFon was selected as the Mobile General Partner of the XXII Winter Olympic Games and XI Paralympic Games to be held in Sochi in 2014.

As a result of its acquisition of the Synterra Group, one of the leading Russian backbone operators in June 2010, MegaFon substantially increased its fixed-line B2B and B2G businesses, as well as its provision of fixed broadband services. In July 2012 MegaFon was awarded one of four ten-year licenses for the provision of 4G/LTE services throughout the entire Russian Federation and, through its MVNO arrangement with Scartel, has already started providing these services in 30 different regions by the end of June 2013. In September 2012 the Company acquired the VAS Media group of companies, which are now being integrated with MegaLabs, its R&D subsidiary. In December 2012 the Company acquired a 25% interest in the Euroset retail chain, the largest chain in Russia providing telecommunications goods and services, and is committed to acquire a further 25% within the next three years.

In November 2012 MegaFon successfully completed an initial public offering on the Moscow Stock Exchange and the London Stock Exchange. MegaFon has two principal shareholders, companies in the AF Telecom group (approximately 50.01%) and the TeliaSonera group (approximately 25.17%). Additional shares are held by its CEO, Ivan Tavrin (2.545%) and by a wholly owned subsidiary of the Company (7.57%, of which Mr. Tavrin has the right to acquire up to 2.5% at various times prior to 2017), while the public float represents approximately 14.705% of the outstanding shares.


Some of the information in this release may contain projections or other forward-looking statements regarding future events or the future financial performance of the Company and/or Scartel / Yota. You can identify forward looking statements by terms such as «expect», «believe», «anticipate», «estimate», «forecast», «intend», «will», «could», «may», or «might» the negative of such terms or other similar expressions. The Company wishes to caution you that these statements are only predictions, and are based upon various assumptions which are inherently subject to significant uncertainties and contingencies which are difficult or impossible to predict and are beyond our control. We may not achieve or accomplish these plans or predictions. The Company does not necessarily intend to update these statements to reflect events and circumstances occurring after the date hereof or to reflect the occurrence of unanticipated events. Many factors could cause the actual results to differ materially from those contained in projections or forward- looking statements of the Company, including, among others, general economic conditions, the competitive environment, risks associated with operating in Russia, rapid technological and market change in the industries in which the Company operates, as well as many other risks specifically related to the Company and its operations and/or Scartel / Yota and their operations.