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. Last Updated: 07/27/2016

Report: MTS to Buy Stake in Kuban

Top mobile operator Mobile TeleSystems has agreed to buy a controlling stake in No. 4 operator Kuban GSM, a source close to the deal said Tuesday.

"The deal will close in the coming days," the source said. "There will be several steps to the deal as a result of which MTS will receive a controlling stake [in Kuban GSM]."

The purchase of Kuban GSM will give MTS, which is spreading its networks from its Moscow base to Russia's largely untapped provinces, a foothold in a fast-growing market in the south where it did not have a license, in contrast to main competitors Vimpelcom and MegaFon.

Another source familiar with the details of the deal said Kuban GSM was valued at $140 million under the terms of the deal.

Last month MTS placed $250 million of bonds to help it pay for regional expansion. MTS has not concealed its interest in Kuban GSM, and United Financial Group telecoms analyst Alexei Yakovitsky said the news of the acquisition was largely priced in to the MTS share price.

The size of the stake that MTS will ultimately buy was not disclosed. No single entity has an absolute majority in Kuban GSM.

Twenty-four percent of it is owned by southern Russian fixed-line operator Kubanelektrosvyaz, which had indicated it planned to sell its holding. The deal has been approved by the board of directors of Kubanelektrosvyaz, said board member David Herne, a fund manager at Brunswick Capital Management. Herne called the valuation "reasonable."

"From the point of view of the shareholders of Kubanelektrosvyaz, all that matters is that Kubanelektrosvyaz receives the appropriate price for the stake in Kuban GSM and that the money is received in cash, not in some sort of debt or promises," Herne said.

Another 27 percent of the company is owned by privately held Kubtelekom, which was not immediately available for comment Tuesday.

Kuban GSM is Russia's largest cellular operator outside of Russia's two major cities, Moscow and St. Petersburg.

Kuban GSM's subscriber base grew 355 percent in 2001 to 372,630, according to data published on the Sotovik web site,, seen as a reliable source for cellular market data.

Deutsche Bank analyst Iouli Matevossov said the price of the stake was also reasonable for MTS, even though he said the deal values Kuban GSM subscribers at $375 apiece, whereas regional cellular companies were previously bought at $300 per subscriber.

"They are paying a small premium. But this is a better region and a better company," Matevossov said.

MTS has signed 60,000 subscribers in St. Petersburg since it started its operations there on Dec. 11, a company report said Tuesday. MTS is adding several base stations daily and it now has 200 base stations in Russia's northern capital and the surrounding northwestern region.