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Articles & publications
14.05.2010
Last warning from Svyazinvest: state holding says what awaits Far East Telecom if it refuses to participate in the merger processRBC daily, Anton Bursak
The Board of Directors of Far East Telecom yesterday approved the agenda of the shareholders meeting which is scheduled to be held on June 28. This is the date on which the operator’s shareholders will decide whether to merge the company with Rostelecom as part of the reorganization of Svyazinvest state holding. In the run-up to the merger, the representatives of the holding have warned minority shareholders that in the event that the transaction is blocked, Far East Telecom could be stripped of its status as a partner of Rostelecom, which would take a heavy toll on the company’s position.
The fact that the agenda was approved and includes the issue of folding the operator into Rostelecom in line with the organization of Svyazinvest holding was reported to RBC Daily by members of the Board of Directors of Far East Telecom. They said that yesterday a meeting of the Strategic Business Planning Committee of the Far East operator was held.
Sources close to the company told RBC Daily that the representatives of Svyazinvest have cautioned some dissenting shareholders that the operator’s business environment could deteriorate dramatically if the merger with Rostelecom fails to take place. “Other companies, including Rostelecom, which lease their backbone telecom lines to Far East Telecom, could reconsider their commercial relations with the operator. Thus, while these have been partnership relations so far, they could subsequently turn into market relations”, RBC Daily’s sources claimed. They went on to say that Svyazinvest has already cautioned them that Far East Telecom’s shares could be delisted if the merger with Rostelecom is blocked. “After this, Svyazinvest could perform a revaluation of the company and in this case its market value might go down considerably”, one of RBC Daily’s sources said.
Deputy Chairman of the Board of Directors of Far East Telecom Mikhail Kobishanov, who represents the interests of some minority shareholders who oppose the valuation which has been made, told RBC Daily that minorities still intend to vote against the transaction, since they regard the appraisal performed by Ernst & Young as “neither independent nor fair”. “We will decide what to do if the merger doesn’t go through after the shareholders meeting”, Mr. Kobishanov said.
The representatives of Svyazinvest were unavailable for comment yesterday. However, earlier a source at the holding told RBC Daily that the reorganization of Svyazinvest could do without Far East Telecom. The state would only gain from this, he believes, since it would receive a bigger share in the merged company. According to an estimate by RBC’s source, the state’s equity position in Rostelecom would go up by 6% if this asset does not participate in the merger.
According to the minorities opposed to the merger between Far East Telecom and Rostelecom as part of the reorganization, the appraisal of this RTO was performed incorrectly. Earlier Mr. Kobishanov told RBC Daily that the company’s stake in the merged holding should be bigger. “The appraisal was supposed to be made mainly using the discounted cash flow method. However, as a result, this method was given only a 50% weighting in the overall appraisal, whereas the same proportion was assigned to the weighted average quotes over a short term – the last quarter of the last year”, Mr. Kobishanov said. He pointed out that the stake held by dissenting minorities accounts for some 25% of the operator’s total equity.
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