OREANDA-NEWS. On 07 August 2009 Mobile TeleSystems OJSC (“MTS” – NYSE: MBT), the largest mobile phone operator in Russia and the CIS, announced that the boards of directors of MTS and Sistema JSFC (“Sistema” – LSE: SSA), the largest public diversified financial corporation in Russia and the CIS, have approved the acquisition by an MTS subsidiary of a 50.91% stake in COMSTAR – United TeleSystems (“COMSTAR-UTS” – LSE: CMST), a leading supplier of integrated telecommunication solutions in Russia and the CIS, from Sistema.

Under the proposed terms, a subsidiary of MTS will purchase Sistema’s 50.91% stake in COMSTAR-UTS for USD 1.272 billion1 or USD 5.98 per Global Depositary Receipt (GDR). The acquisition is dependant on the buyer’s ability to raise the necessary financing for the transaction and the approval of Sistema shareholders. Approval from the Federal Anti-Monopoly Service (FAS) to acquire up to 100% of COMSTAR-UTS was received on June 18, 2009, though additional approvals will be required to complete the transaction. Provided these conditions are met, the execution of the share purchase agreement and closing of the transaction is scheduled for the end of October 2009.  No decision has been made regarding the extension of an offer to minority shareholders of COMSTAR-UTS. 

MTS believes the transaction will provide access to important growth markets in commercial and residential broadband; realize value-accretive synergies in capital and operational expenditures; and provide a foundation for the development of effective content platforms and services.

The approval of the acquisition of COMSTAR-UTS by the MTS Board of Directors was based on the recommendation of the Special Committee to the Board, which consists of the three independent directors who serve on the Board.  The Special Committee was established on May 22, 2009, to oversee the transaction process and decide whether to recommend the acquisition to the full Board.  Fairness opinions were provided to the Special Committee by independent financial advisors J.P. Morgan plc and ING.  Cleary Gottlieb Steen & Hamilton LLP served as legal advisor on the transaction, while PricewaterhouseCoopers Russia provided advice and analysis of the commercial, tax and financial aspects of the transaction.  Legal due diligence was performed by law firm Liniya Prava.  Additional independent legal advice to the Special Committee was provided by Cravath, Swaine & Moore LLP.

Mr. Mikhail Shamolin, the President and CEO of MTS, highlighted: “There is no doubt that MTS’ markets are changing, and we believe the Comstar acquisition will translate into the right asset and product mix to realize significant growth in the Russian and CIS telecommunications markets.  Pairing MTS’ brand and footprint with Comstar’s product mix and know-how will enable us to deliver wider Internet access, integrated communications services and innovative solutions to our customers.  We are confident that this deal will allow both companies to meet the challenges our markets present and seize opportunities to create additional value for our respective shareholders.”

1 As transactions between two Russian entities must be carried out in rubles, MTS will hedge the final amount due on completion of the transaction with 50% of the sale price pegged at 31.9349 rubles:dollar rate, while the balance will be calculated at the official rate of the Central Bank of Russia on the date of completion.