Court Allows St. Pete Merger




ST. PETERSBURG -- A court decision filed by a solitary hostile shareholder that put on hold the merger of three St. Petersburg telecommunications companies was effectively overturned by a St. Petersburg city court on Thursday.


Sergei Moiseyev, a private shareholder in St. Petersburg Intercity and International Telephone, or SPMMT, applied to the Kyubyshev district court in St. Petersburg to have the merger between SPMMT, Petersburg Telephone Network, or PTS, and St. Petersburg Telegraph put on hold until a study could be done on the share-swapping arrangements involved in the deal.


The court ruled in Moiseyev's favor, freezing work on the merger until a hearing scheduled for Oct. 12.


The merger is a key to the ambitious national restructuring plans of state telecom holding Svyazinvest.


Because two of the nation's top telecoms leaders f Communications Minister Leonid Reiman and Svyazinvest director Valery Yashin f come from St. Petersburg along with their strong ally, President Vladimir Putin, the merger carries more weight than any other Svyazinvest initiative.


Thursday's court ruling means the amalgamation process can proceed.


"Given this decision, the merger will most likely take place now, even though it ignores the rights of some shareholders," Moiseyev said outside the courthouse after the decision. "I think that today is the end of the story, meaning that SPMMT and PTS will merge."


The St. Petersburg telecoms' $450 million merger was announced in March.


Although 90 percent of SPMMT shareholders voted in favor of the merger, the deal was stopped when Moiseyev's lawsuit asserted that the merger would dilute the value of some shareholders' stock.


"SPMMT shareholders have been offered stock in the new company worth less than half of the value of their stock now," Moiseyev said.


The Kyubyshev court granted an injunction at the beginning of this month that halted work on the merger because, according to the conditions of the merger, SPMMT would have disappeared as a legal entity before a decision could be made on Moiseyev's claims.


However, the court received petitions from a number of those involved with the merger, particularly from Svyazinvest's Yashin. Svyazinvest owns the majority of the regular shares in all three companies.


The petitions argued that the court decision was unfounded and threatened the interests of the majority of the shareholders in the three companies.


Vladislav Zobilin, director of Svyazinvest's legal department, who represented the holding at Thursday's hearing, said the delay in the merger threatened the value of shares in Svyazinvest, which faced losses of tens of millions of rubles.


"The Kyubyshev court should have explained to [Moiseyev] that he may have been sued for compensation for the losses if Svyazinvest lodged a countersuit," Zobilin said. "Moiseyev is a pensioner and he doesn't have many shares or that much money."


After the court hearing, Moiseyev said such statements represented the kind of pressure Svyazinvest's representatives had been trying to use on him.


"Honestly, I had expected such a decision from the court, so I'm not surprised or upset," Moiseyev said. "I feel that the court was subject to some pressure. Even before today's session, the court behaved as if they already knew what the ruling would be."


Moiseyev said he was never against the idea of the merger of the companies itself, as he thinks it could be good for them. What he was against was the ratios to be used to determine the share conversion.


And there was some evidence to back up Moiseyev's claim.


Alexander Uzlov, head of the advisory board at SPMMT, said the price of preferred SPT shares listed in the agreement was 2 rubles (7.2 cents), while the SPMMT shares were valued at 8 rubles f suggesting a swap ratio of four to one. But the merger agreement lists a swap ratio of 1.721 to 1, a rate less than half the shares' values.


But officials at Renaissance Capital investment bank, who are serving as advisers to the merger, say the four to one ratio is an oversimplification and that a number of indicators were used to arrive at the swap ratio listed in the merger agreement.


Moiseyev said he is not going to give up yet and that even though the merger process will continue he will fight against it in the court's fall session.


"The court may take a different decision in the fall," he said.


Vedomosti newspaper reported that Moiseyev is not the only private shareholder who disagrees with the merger, and that his suit was actually a front for the points of view of more powerful SPMMT private shareholders who prefer to remain behind the scenes.


Private shareholders hold 12.87 percent of SPMMT stock. A SPMMT manager, who refused to be identified, said the majority of the shareholders who voted against the merger deal were from this group, according to Vedomosti.


Another possibility suggested by both Vedomosti and Kommersant is that Moiseyev's suit might have been spurred on by SPMMT management, who also oppose the merger.


Svyazinvest representatives made no comment on the decision following the hearing.


But Marina Tikhonova, a Svyazinvest spokeswoman, welcomed the decision, saying the merger was a positive step for all of those involved.


She also said the continued process of the merger won't pose difficulties for the October hearing.


"Continuing the merger won't make a difference in October, even should SPMMT cease to exist as a legal entity," Tikhonova said. "If the court rules in Moiseyev's favor, then the process can still be reversed."