Daily analyst comments
The price MTS could pay for 51% in Comstar becomes clearer
03.08.09 11:02
The deal for the takeover of Comstar by MTS looks ambigous and the prospects of any synergy between fixed-line and cellular businesses are unclear. In the wake of the deal, MTS is likely to see its leverage grow and the combined operator may see its margins shrink. However, it is premature to judge the economic benefits of the transaction before its structure is officially announced and the fate of Comstar’s blocking stake in Svyazinvest is known.
Citing undisclosed sources, on July 23 Kommersant daily announced the parameters of an offer submitted by MTS to Systema as part of the sales procedure for a controlling stake in Comstar (both Comstar and MTS are controlled by Systema). Each share in the 51% share package was estimated at USD 5.98, which values the entire company at roughly USD 2.5 billion, up by nearly 20% on its July 31 LSE closing price.
The potential deal for the purchase of a controlling interest in Comstar by MTS has already been covered in previous reports (see daily of May 20). However, the decision on a merger between the two operators is yet to be finalized and investors are still in the dark about whether the deal will go ahead.
Given the information about the price of the deal, it becomes evident that Systema must have finalized its decision to sell its one subsidiary to its other subsidiary, which is undoubtedly lucrative for Systema itself. However, any synergy from a merger between the fixed-line and cellular businesses is far from clear. Comstar closed the first quarter with an OIBDA margin of 38%, compared with 46% at MTS.
On the other hand, if Comstar swaps its blocking stake in Svyazinvest to have its debt to Sberbank written off, Comstar will practically clear all its debts. In this case, the investment appeal of the fixed-line operator would grow significantly, as would the benefits of the transaction for MTS.
We assign a BUY rating to MTS shares, with a target price of USD 11.71 per share as of year-end 2010.