On January 17 Interfax reported with reference to Megafon that the company’s shareholders at their extraordinary meeting on February 18 are to consider takeover of the subsidiaries ZAO Sonik Duo, ZAO Mobicom Kavkaz, OAO MSS Povolzhye, ZAO URAL GSM, ZAO Mobicom Center, ZAO Mobicom Khabarovsk and ZAO Mobicom Novosibirsk. Last year Megafon tried several times to complete consolidation, but OAO CT-Mobile, Alfa Group’s subsidiary, blocked these decisions. The reason was the dispute between IPOC and Alfa about CT Mobile which started in 2003.
The consolidation is not to have any strong impact on the business of the operator, but it would simplify operations and financing. In addition, the creation of a monolith and a transparent structure is a recipe for a successful IPO. The market had hoped to participate in this IPO, however conflict between the shareholders did not allow a placement to take place, despite favorable market conditions. Taking into account that at the end of 2007 IPOC and Alfa settled their dispute, we believe that the meeting of shareholders is likely to vote for the takeover of the subsidiaries by the parent company.
Generally, we are upbeat about Megafon. We have tracked the company's development closely. If they were to have to an IPO, it would become an interesting investment vehicle. The public placement of the No.3 Operator does not have any implications for the fair value of Vimpelcom and MTS. Therefore, we do not change our BUY recommendation for MTS shares and their fair value of USD 18.22.
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