Monday, Russia's diversified telecom operator JSFC Sistema (SSA.L, JSFCY.PK, JSFCF.PK) said that it has signed an agreement to acquire controlling stakes in Bashkir Oil and Energy Group companies for a total cash consideration of US$2.5 billion. The company will make the payment in two tranches with US$2 billion paid upon the completion and US$500 million being paid on a deferred basis after 14 months. The deal closure is contingent upon the fulfillment of a number of conditions.
Under the agreement, Moscow, Russia-based Sistema will buy stakes of Agidel-Invest LLC, Ural-Invest LLC, Inzer-Invest LLC and Yuryuzan-Invest LLC in Bashkir, including its subsidiaries.
Following the completion of the deal, Sistema's ownership in Bashkir's subsidiaries will comprise 76.52% stake in ANK Bashneft JSC, 65.78% stake in Ufaneftechim JSC, 87.23% stake in Novoil JSC, 73.02% stake in Ufaorgsintez JSC, 78.49% stake in Ufimskiy NPZ JSC and 73.33% stake in Bashkirnefteproduct JSC. Earlier in 2005, Sistema's subsidiary Sistema-Invest had acquired minority stakes in Bashkir Oil and Energy Group's subsidiaries.
In addition, Sistema said it plans to make an offer to minority shareholders of Bashkir Oil and Energy Group for purchase of their shares, in accordance with the Russian legislation.
Bashkir Oil and Energy is among the top ten oil production companies in Russia, the fifth largest oil processing Russian company, and the fourth largest company by oil reserves. In the year 2008, the company produced 11.7 million tons of oil, processed 21 million tons, and has over 310 million tons of reserves. For the first nine months of 2008, the company's revenues amounted to RUB 161.3 billion.
For the first nine months of 2008, Sistema, the largest public diversified corporation in Russia and the CIS, which manages companies in the telecommunications, consumer services sectors and technology industries, reported revenues of US$12.6 billion and total assets of US$32.0 billion as of September 30, 2008. Founded in 1993, Sistema develops and manages businesses in selected industries, including telecommunications, technology, banking, real estate, retail, media, tourism and healthcare.
Commenting on the transaction, Leonid Melamed, President and Chief Executive Officer, said, Sistema and its Group companies have been operating in Bashkortostan for a number of years. We are confident that the acquisition of controlling stakes in Bashkir Oil and Energy Group companies will underpin our cooperation with the Republic. We plan to further develop and build up the production potential of the oil companies thus strengthening the economy and social infrastructure in Bashkortostan.
Melamed added, Furthermore, the creation of a vertically integrated oil company will sustain further economic development and rational use of the Republic's potential in the future. The increase in Sistema's ownership of Bashkir Oil and Energy Group companies is in line with our strategy to create additional shareholder value. This transaction will allow us to maximize the returns from our portfolio investments and to receive another steady source of cash flows.
On March 13, Sistema said it signed an agreement with CJSC Synterra Group to sell 43.4% stake, or 50% of voting shares, in MTT for about US$54 million in cash. In addition, telecommunication service provider Synterra will assume MTT's intercompany debt commitment to Sistema, which will lead to a decrease in overall debt.
Sistema's major telecom businesses, MTS and Comstar-UTS, along with other mobile and fixed-line operators are active in the market making their own long-distance networks, hence the sale of MTT is expected to reduce the level of competition among Sistema Group companies. According to the company, the sale of 50% stake in MTT is in line with its stated strategy to optimize the portfolio of telecommunication businesses, and the deal is a logical step towards eliminating the duplication of services within our portfolio of companies.
On the London Stock Exchange, Sistema shares are currently trading at US$6.05, down US$0.31 or 4.87% on a volume of 126 thousand shares.
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