Russia’s MegaFon to acquire majority stake in Mail.Ru for $640 million

MegaFon, a leading Russian telecom group, intends acquire a majority stake of Mail.Ru Group, Russia’s biggest Internet group. The announcement was made today following a meeting of MegaFon’s board of directors, but it still needs approval from the group’s shareholders, who will meet on Jan. 20, 2017.

“MegaFon will acquire 11.5 million Class A shares and 21.9 million ordinary shares of Mail.Ru Group, accounting for approximately 63.8% of the voting shared of Mail.Ru Group,” according to a statement issued this morning.

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The transaction, if confirmed, will amount to $640 million, including $540 million to be settled when the deal is sealed and another $100 million to be paid one year later.

The shares will be sold by New Media and Technology Investment LP, New Media Technologies Capital Partners Limited, and Ardoe Finance Limited.

Usmanov still in control

These entities are part of USM, a holding company controlled by Russian billionaire Alisher Usmanov. However, should the transaction be confirmed, Usmanov would still keep an indirect interest in Mail.Ru Group, since USM holds more than 56% of MegaFon.

The acquisition news comes as both companies are collaborating to develop new products and organize “significant synergies.”

In particular, the two companies have agreed to launch a special service for Vkontakte’s mobile users. The new service, branded VK Mobile, will benefit from the infrastructure of Megafon and its affiliate Scartel.

Vkontakte (VK.com), Russia’s leading social network, is a property of Mail.Ru Group, along with two other major social networks, Odnoklassniki and Moi Mir, as well as a variety of sites, apps, games, and messaging services.

Mail.Ru Group and MegaFon have also teamed up to jointly develop predictive data analysis tools, aiming to improve user segmentation.

Even after the potential acquisition, however, the two companies will “continue operating as separate entities on an arm’s-length basis, with both management teams dedicated to preserving each other’s corporate culture and governance, ensuring continuity of operating and product development activities, and focusing co-operation on areas of mutual strategic and economic benefits,” the companies announced in a previous statement on the planned acquisition.

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Serving half the population

Founded more than 20 years ago, MegaFon provides mobile communication services to all regions of Russia, as well as to the Republic of Abkhazia, South Ossetia, and Tajikistan.

The group claims a total subscriber base of more than 76.8 million people — more than half of Russia’s population — as of late 2015. More than 53% of these subscribers have access to 4G services.

The MegaFon Group also includes:

• MegaFon Retail, which operates a large outlet network selling telecom services and equipment, and customer service;
  MegaLabs, which provides innovative products and services and develops long-term projects;
• NETBYNET, acquired in 2011, which offers broadband Internet access and landline telecommunications;
• Yota, acquired in 2012, an operator providing high-speed Internet (2G/3G/4G), voice calling, and SMS services.

The group’s shares have been traded on the stock exchange in Moscow and London since 2012.

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This post first appeared on East-West Digital News, an international resource about innovation in Eastern Europe.