MegaFon views the acquisition of Gars Telecom as a part of its strategy stipulating the development of the B2B segment, the second key division of business after servicing of individual clients.
“The purchase will enable us to expand presence on the market of fixed-line connection in the B2B segment thanks to welding of skills and experience of MegaFon and Gars Telecom. We think the deal will result in an ideal combination of business of the both companies, which will boost the volume and quality of services provided by MegaFon and Gars Telecom to our existing and future clients,” MegaFon’s General Director Ivan Tavrin told Russian Connection.
The mobile operator’s board of directors approved in June the acquisition of 100% in Gars Holding Ltd., the holding company of the Gars Telecom group, from firms Stayblon and Giacomodex Finance, and the deal was later cleared by the Federal Antimonopoly Service.
Founded in 1999, Gars Telecom is an operator of fixed-line services, focusing on work with big corporate clients in Moscow and St. Petersburg, also offering telecom consulting services, outsourcing of communications services and telecom infrastructure. Gars Telecom also functions as a virtual mobile operator for corporate clients on networks of MegaFon and VimpelCom, known under the Beeline brand.
“We are extremely positive about the deal, because MegaFon needs a unique status in the Moscow B2B telecom segment, and Gars Telecom is interested in resources enabling it to develop faster,” Mikhail Sergeyev, director for corporate communications at Gars Telecom, said.
“There are no doubts that synergy from a combination of MegaFon’s resources and Gars Telecom’s expertise will result in the creation of a new charismatic leader on the B2B telecom market in Moscow. An opportunity of making a really evolutionary step in our telecom life is the main motivation behind the deal.”
The parties did not disclose the amount of the deal, but Finam’s financial analyst Timur Nigmatullin said that it seems to be at 1.5 billion–2 billion rubles, as Gars Telecom was hardly estimated higher than its annual revenue, amounting to 1.4 billion rubles in 2014.
“According to my estimate, its share on the Russian market of B2B telecom services is insignificant and stands at less than a tenth fraction of 1%. The whole market amounts to some 300 billion rubles. In the scale of MegaFon’s business and its operating cash flow, it’s a narrow slice,” Nigmatullin said.
The analyst saw several reasons for MegaFon’s interest in the deal. “On the one hand, in the climate of the stagnating telecom market due to the negative economic situation, expansion of a market share via merger and acquisition deals is becoming a more and more widely spread strategy for the operator. Moreover, the acquired company works on the promising VoIP (voice-over-IP) services market, among others,” Nigmatullin said.
“On the other hand, the mobile operator is clearly interested in cementing its position in the Moscow Region along with the expansion of Rostelecom and Tele2. I would like to remind that Gars Holding focuses on the work with big corporate clients and enjoys strong positions in the region. It’s quite difficult to foresee the future of certain units of Gars Holding afterward. MegaFon could gradually integrate them to cut operating expenses.”
T2 RTK Holding, a joint venture of Rostelecom and Tele2 operating under the latter’s brand, is going to start providing connection services in Moscow and the Moscow Region on October 22. The widely promoted low-cost policy could add momentum to Tele2 and force the “big three” – MTS, MegaFon and VimpelCom – to cede some space in these areas, which account for 30–40% of the whole revenue of the triad.
“MegaFon’s positions in the corporate segment are somewhat weaker than those of other companies of the big three. Thus, the purchase of Gars Telecom looks quite logical and its impact on MegaFon’s financial results will be minor, as we see them,” UralSib Capital’s analysts said in a research note.
“MegaFon is one of the leaders on the Russian telecom market from the operating point of view and occupies the most solid position on the mobile data transfer market. As well as MTS, MegaFon is one of our favorites and we recommend buying its shares.”