On January 28 mass-media reported that the company does not presently plan to merge two of its assets (MTS and Komstar) using the Vimplecom and GoldenTelecom merger as a model. There were no additional explanations provided to the public.
We think that this information is relatively neutral. Despite the similarity of the business models used by the pairs, MTS-Komstar and Vimpelcom-GoldenTelecom, the merger performed by the latter looks like a desperate step due to the lack of any real large assets for expansion. At the same time, the fact of a possible merger seems attractive to investors because both assets have an excellent chance to produce a synergy effect. Sistema and MTS have an opportunity to enter the rapidly growing Indian market. If AFK’s expansion in the region would be successful, MTS might get an excellent wireless asset for acquisition. It would allow the company to develop more consistently, and remain a classical mobile operator.
We reiterate our BUY recommendation for common shares in MTS. The fair value is USD 18.22 per share.
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