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Articles & publications
12.07.2010
Svyazinvest eyes Severen: holding’s subsidiary to take over St. Petersburg telecom operatorKommersant
Inna Erokhina
Svyazinvest is looking to acquire 100% of the shares of a large St. Petersburg and Leningrad region-based fixed-line telecommunications operator Severen Telecom. As reported to Kommersant, a subsidiary of the state holding North-West Telecom (NWT) has filed the respective application with the Federal Antimonopoly Service (FAS). The amount of the transaction could reach up to $40 mln.
Svyazinvest is conducting negotiations aimed at taking over Severen Telecom, a source on the telecommunications market said. According to Kommersant’s source, the parties have signed a memorandum of intent and the holding is currently performing a due diligence of this asset. The plan is to close the deal in the third quarter of this year. The general director of Severen Telecom Sergey Lagir confirmed that the company “is holding negotiations with a number of investors, among which is NWT”. Lagir declined to name other contenders. Sources at Svyazinvest also declined to elaborate until the deal is finalized.
Head of the department for the supervision of transportation and telecommunications of the Federal Antimonpoly Service Dmitry Rutenburg pointed out that NWT (2009 IFRS revenue – RUR 26.566 bln, net profit – RUR 2.592 bln) has already filed an application to take over Severen Telecom.
Severen Telecom was established in 2001 and is part of the Severn Group of companies (a service provider based in Moscow, Samara and Novosibirsk). Severen Telecom operates on the corporate market in Saint Petersburg and the Leningrad Region, providing telecommunications, Internet hosting, line-leading and VPN services. According to SPARK information system, the operator’s revenue amounted t RUR 452.5 mln in 2008, while net profit came to RUR 49.2 mln. The main shareholders are private investors.
Severen Telecom is not the first asset which has been given up by the Severen Group of companies. Last year, Summa Telecom acquired Severen Kholm (Cipher brand with a subscriber base numbering some 40,000 users in Saint Petersburg) from the broadband Internet provider group for $9 mln.
The general director of Vestcom, which has an 8-9% share of the St. Petersburg corporate telecommunications market, Mikhail Reshetov, believes it would be advisable for Svyazinvest to pick up assets in the region, since competition in large cities is fierce, and there are virtually no startups, which means that clients migrate mainly from one company to another with a more aggressive policy.
“Severen Telecom has been expanding rapidly over the past two years, mainly thanks to its management, and if it is folded into “ossified” NWT the company’s development will most likely slow down”, Mr. Reshetov believes. The manager estimates NWT’s share of the corporate clients market of the North-West Federal District at 35%, and Severen Telecom’s at 8%, although in the event of a takeover these two numbers cannot be totaled, since many clients use Internet and telephony services from different operators. Lagir went on to say that Severen Telecom’s market share is 10% (about 2,700 companies).
The Vice President of Comstar for regional development Viktor Koresh agrees with the fact that expansion on the b2b market is intrinsically limited: “In order to raise revenue by 10%, it would be necessary at the same time to boost the subscriber base by 30%, since tariffs are continuously in decline”. Mr. Koresh estimates Severen Telecom at 5x EBITDA and VestCall at 5-6x EBITDA. Kommersant’s source, which is close to Severen Telecom, notes that the parties are currently discussing the amount of the transaction, which lies within a range of multiples “slightly more than 6x EBITDA”. He also noted that the company’s 2010 revenue guidance is RUR 470 mln, EBITDA is RUR 170 mln, and EBITDA margin is expected to be 35-40%. As a result, the amount of the transaction could be as much as $40 mln.
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