Usmanov's MegaFon Has $1.26 Billion Plan to Go Private

(Bloomberg) -- Billionaire Alisher Usmanov’s MegaFon PJSC plans to spend as much as $1.26 billion buying back its entire free float and delisting from the London Stock Exchange, to take Russia’s second-largest phone carrier private.

A unit of the carrier will buy as many as 129 million shares at $9.75 apiece by August 22, the company said in a statement Monday. That’s a 21 percent premium to MegaFon’s close on July 13 in Moscow.

Russian companies have been pulling back from London’s stock market, hit by falling valuations as investors fret about geographical and corporate governance risks, with sanctions hurting sentiment. Meat producer Cherkizovo Group PJSC is mulling a Moscow share sale after delisting from London last year, while the deputy chief executive officer of TMK PJSC said the steel pipes producer may consider a similar move in the future.

MegaFon’s announcement follows speculation that the company would pull its London listing and takes it a step further, as the carrier seeks a change in strategy toward digital investments. Worth over $20 billion in 2013, MegaFon has lost three-fourths of its value due to high competition in the local telecom industry and Russia’s geopolitical tensions with the West.

“It looks as if MegaFon’s owners don’t see value in being a public company and raising funds via share sales,” said Alexander Vengranovich, an analyst at Sova Capital. “MegaFon retains solid access to debt financing, has joint projects with the government and will be able to do M&A deals without much publicity.”

The proposed delisting reflects the scale of strategic change MegaFon needs to make to become a leader in the Russian digital market, Executive Director Gevork Vermishyan said in the statement.

On a call with reporters, Vermishyan said MegaFon may consider loans to fund the buyout. MegaFon could still retain a Russian listing if some shareholders don’t agree to the tender offer, he said, noting that the premium is quite high to entice them.

The stock rose as much as 17 percent on the country’s Micex index to 589.9 rubles ($9.48) and gained 7.8 percent in London on Monday.

USM Group, controlled by the Kremlin-friendly Usmanov, owns about 56 percent of MegaFon shares, followed by Gazprombank with about 19 percent, according to the company’s website. State-run Gazprombank bought its stake in MegaFon from Sweden’s Telia AB last year.

MegaFon in May moved its stake in internet company Group Ltd. to a joint venture with two state-backed firms in a move that may have been structured to provide protection against possible future sanctions. The planned delisting from London may be needed to reduce potential sanctions risks for MegaFon, according to Vengranovich. The company opted not to pay dividends for 2017, which hurt its share price.

Morgan Stanley said the tender offer is fair from a financial point of view to shareholders, MegaFon said.

MegaFon went public in 2012 as part of the deal to end an ownership dispute between its three shareholders -- Russian billionaires Mikhail Fridman and Usmanov and Sweden’s Telia. As part of the agreement, Usmanov bought Fridman’s stake in MegaFon, while Telia agreed to reduce its ownership via an initial public offering.

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