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Articles & publications
29.06.2010
Far East Telecom gives the go-ahead to the mergerVedomosti, Igor Tsukanov
The shareholders of all seven of Svyazinvest’s regional telecommunications operators (RTOs) have voted for the merger with Rostelecom. The last company to do so was Far East Telecom, whose minority shareholders are known to have voiced their dissatisfaction.
Yesterday, the last of the seven RTOs – Far East Telecom – passed a resolution to merge with Rostelecom. All in all, 85.05% of the votes cast were in favor of the reorganization, while 73.74% of those holding voting shares (common and preferred) attended the meeting, the company said in a statement. Now, when the shareholders of seven RTOs and Rostelecom have voiced their support for the merger, the reorganization is essentially a done deal, and the process cannot be undone, as the head of the Information Department of Svyazinvest Igor Pshenichnikov pointed out.
Of all the RTOs, the fate of Far East Telecom still remains the most unclear. Some minority shareholders believed that the Rostelecom share swap ratios appraised by Ernst & Young are unfair. They claim that the value of the Far East operator was understated compared with a number of other RTOs. The interests of these minorities were expressed by Mikhail Kobishchanov when he contended that “at least 25% of the charter capital” of Far East Telecom intend to vote against the merger with Rostelecom, thus blocking the reorganization of the company.
That said, Kobishchanov does not have any doubts about yesterday’s voting. Given the relatively small quorum that decided the reorganization issue, there is still a chance that the merger could be blocked, he believes. Kobishchanov himself voted with a 12% equity position in the company (8.9% of its charter capital) and spoke out against the merger of Far East Telecom with Rostelecom. He said that two large Scandinavian investment funds, which hold more than 7% of Far East Telecom’s charter capital, intended to act likewise, but their ballot sheets failed to reach the voting committee. He declined to name these funds. According to another minority representative, only one other fund, which owns about 3% of the operator’s charter capital, planned to cast a dissenting vote, but it did not manage to deliver its ballot to the voting committee on time.
Mr. Kobishchanov is not the only one that voted against the reorganization. Prosperity Capital Management also cast a dissenting vote, according its head investment director, Alexander Branis. He declined to disclose the size of Prosperity’s holding. All in all, the owners of 12% of the company’s charter capital voted against the merger.
However, the majority of minority shareholders supported the reorganization, according to a member of the board of directors of Far East Telecom and representative of the Investor Protection Association, which represents the interests of RTO minorities), Alexander Shevchuk. Otherwise, the issue would not have been approved, he points out, since Svyazinvest has only 38% of the operator’s charter capital, while at least 75% of favorable votes were required.
Incidentally, Svyazinvest still needs to persuade the minority shareholders of Dagsvayzinform about the advantages of the merger. The shareholders meeting of this subsidiary was scheduled to be held on June 17, but failed to take place. As a matter of fact, representatives of Svyazinvest never showed up for the meeting as they were not sure that they would receive support from minorities. Those opposed to the merger include, among others, former managers of the Dagestan operator, a source among its shareholders notes. The meeting has been rescheduled for July 26, and Svyazinvest is currently conducting consultations with the minority shareholders of Dagsvyazinform, Pschenichnikov said.
One out of every four expected to demand buyback
The shareholders of RTOs and Rostelecom, that voted against the reorganization or which failed to participate in the voting are entitled to present their shares for buyback. Specifically, the minority shareholders of Far East Telecom could present 37.3% of the charter capital for buyback. Based on the buyback prices approved by the board of directors, they could demand RUR 4.34 bln for this block of shares. But by law, the buyback threshold is 10% of the value of the company’s net assets. Thus, in the case of Far East Telecom, this threshold would be RUR 1.04 bln.
Far East Telecom, fixed-line and cellular operator. The company provides services in eight regions of the Far East. Shareholders – Svyazinvest – (38.13% of charter capital), institutional investors (49.87%), private investors (11.64%). Capitalization – RUR 11.4 bln; financial indicators (IFRS, 2009): revenue – RUR 17.2 bln, net profit – RUR 2.52 bln.
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