Usmanov to take control of Megafon ahead of IPO

The shareholders of Russian operator Megafon have agreed a new ownership structure that will see AF Telecom, the holding company of Russian entrepreneur Alisher Usmanov, take control of the company. TeliaSonera will sell an 8.2 percent indirect stake to AF for USD 1.45 billion, while Altimo will sell its entire 25.1 percent stake in Megafon. The latter transaction will include the sale of 14.4 percent to a subsidiary of MegaFon for USD 2.16 billion, while the remaining 10.7 percent will be sold to AF Telecom for USD 1.61 billion. TeliaSonera has also agreed to pay USD 200 million to Altimo in order to complete the transaction. Following these transactions, TeliaSonera will own 35.6 percent, AF Telecom 50.0 percent plus one share, and MegaFon, through its subsidiary, will own the remaining 14.4 percent. 

The shareholders also agreed to work towards an IPO of MegaFon, including a listing on the London Stock Exchange as soon as possible. Up to 20 percent of MegaFon's shares will be publicly traded, of which TeliaSonera and MegaFon will contribute up to 10.6 percent and 9.4 percent, respectively. If the IPO has not been completed by the end of 2014, TeliaSonera will have the right to sell to AF Telecom or a subsidiary of MegaFon, and AF Telecom or a subsidiary of MegaFon will have the right to buy 10.6 percent of TeliaSonera’s shares in MegaFon. The price paid will be based on fair market value. 

In addition, the shareholders agreed that Megafon will pay a dividend of USD 5.15 billion and adopt a dividend policy to pay annually the higher of 50 percent of net income or 70 percent of cash flow in rubles. MegaFon will target net debt of 1.2-1.5x EBITDA, while excess cash shall also be returned to shareholders. TeliaSonera and AF Telecom will be represented by three members each on MegaFon's board while there will be one independent director. Each will have equal voting rights at shareholder meetings, until the IPO is completed.