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. Last Updated: 07/27/2016

Svyazinvest OKs Rostelecom Merger

The board of state-controlled telecoms giant Svyazinvest on Tuesday approved a plan to merge its seven regional fixed-line operators with Rostelecom by May 2011, Svyazinvest said in a statement.

Svyazinvest executives expect the restructuring to bring synergies in excess of 30 billion rubles ($1 billion). The merger must also be approved at the board meetings of the subsidiaries of Svyazinvest that will be held next summer.

The company will carry out a share appraisal, which will help establish the share-swap rations of the regional companies, by 2010. And to boost the liquidity, the merged company, which will offer a full range of services including broadband, fixed-line and mobile, will list its shares on Russian and foreign stock exchanges, the statement said.

Communications and Press Minister Igor Shchyogolev said earlier this month that the government would consider privatizing the restructured company and listing its shares in 2012.

Shares in Rostelecom skyrocketed 20 percent on Monday in anticipation of the meeting, but fell 6 percent Tuesday in a correction.

It may be too early to judge whether Svyazinvest’s restructuring will create the market-dominating giant the government is hoping for, analysts said.

“Svyazinvest used to dominate the market. But the mergers of MTS and Comstar and VimpelCom and Golden Telecom created strong new rivals for Svyazinvest,” said Philip Townsend, an analyst at Metropol. “Either Svyazinvest must increase its prices for local calls or it has to get cheap loans from the government. Otherwise the restructuring of Svyazinvest will fail.”

Nevertheless, the integrated company will be able to create inroads in regional markets and will present an attractive opportunity for investors when shares are sold.

“There are currently no fixed-line telephone operators in Russia that are structured regionally. The restructured company will dominate the Russian market,” said Alexander Kazbegi from Renaissance Capital.

“But any restructuring brings certain risks. The managers of the restructured company will have to show its potential and to prove that it will create additional value for the shareholders,” Kazbegi said.