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. Last Updated: 07/27/2016

MTS to Buy Control Of Armenia Provider

Mobile TeleSystems, the country's largest mobile phone company, will spend up to 310 million euros ($430 million) to buy control of Armenian operator VivaCell, continuing expansion beyond the saturated Russian market, CEO Leonid Melamed said Friday.

Mobile TeleSystems, or MTS, bought 80 percent in the parent company of K-Telecom, which operates under the VivaCell brand. MTS paid $546 per subscriber, Melamed said in a conference call from Yerevan.

The price "implies high multiples with a market capitalization of $791 per subscriber," Aton Capital Group said in a research note. "We believe the valuation is justified by high growth potential in Armenia," where mobile phone penetration is 39 percent.

Russian mobile phone companies, led by MTS, had about 162 million users in Russia at the end of July, 20 million more than the country's population, and are looking at other markets to sustain growth. MTS has more than 78 million subscribers in Russia, Ukraine, Uzbekistan, Turkmenistan and Belarus.

"This acquisition fully complies with our strategy to capture growth opportunities in the fast-growing CIS markets," Melamed said, referring to the Commonwealth of Independent States, which includes 12 former Soviet republics. "We expect the company will show a double digit growth in the future."

Aton estimates the deal will add from 2 percent to 3 percent to Mobile TeleSystems' revenue and earnings before interest, taxes, depreciation and amortization next year.

Melamed said MTS would pay 50 million of the 310 million euros over the next three years if K-Telecom meets financial targets. He declined to be more specific.

K-Telecom was founded by the Fattouche family, a Lebanese investment group that retains 20 percent in the company and may sell it to MTS between 2010 and 2012, Melamed said.

K-Telecom has about a million subscribers and more than 66 percent of the mobile phone market in Armenia, a country of more than 3 million people.

Last year, the company reported sales of $104.1 million and operating income before depreciation and amortization at $57.8 million. OIBDA as a percentage of sales was 54.4 percent and the average monthly revenue per user was $15.60. It stood at $12 in the second quarter this year, Melamed said.

MTS will provide a 140 million euro technical loan to K-Telecom to pay off existing debt and help develop the company. MTS will make an announcement in the second quarter of next year if it decides to use the MTS brand instead of the VivaCell brand in Armenia.

Nikolai Pryanishnikov, executive vice president at VimpelCom, the country's second-largest mobile phone company, told reporters Friday that his company was "calm" about the deal "because we are competitive with MTS."

VimpelCom last year paid 341.9 million euros for Armentel, a fixed-line and mobile operator in Armenia.

"It will be even easier for us, as MTS is a traded company and is responsible for making financial results more transparent," Pryanishnikov said.