Deutsche Telekom Set To Raise $1.4B From MTS Sale

BERLIN (Dow Jones)--Deutsche Telekom AG (DT) is set to raise $1.4 billion from the sale a chunk of Russian wireless operator Mobile TeleSystems (MBT), money it can well use as it resumes dividends, buys out minorities in its Internet business and expands in the U.S.

Germany's largest telecommunications company said late Wednesday it will sell about 12% of MTS - the largest mobile operator in eastern Europe - on the stock markets via an accelerated bookbuilding. The move will reduce its holding in the Moscow-based company to around 13%.

"Telekom didn't have a long-term interest in MTS," Per-Ola Hellgren, an analyst at Landesbank Rheinland-Pfalz, said in a note to investors. "The announced sale makes sense." He rates Deutsche Telekom shares at outperform.

The news is also positive from MTS' perspective as it increases the amount of freely-traded shares in one of Russia's best-run companies and one that has exhibited good corporate governance.

"MTS shares will definitely rise in the long term as a result of the increased free-float," said Anastasia Obukhova, analyst at Moscow-based brokerage United Financial Group.

MTS shares, which have dropped 22% since Nov. 10, when reports first surfaced that Deutsche Telekom was planning to exit MTS, closed down 4.2% at $119 in New York Wednesday. The stock has also been hit recently by concern over the tax claims against rival wireless operator OAO Vimpel Communications (VIP).

MTS did an initial public offering in New York in spring of 2000 and has been held as an example of good corporate governance ever since. MTS offers mobile phone services in Russia, the Ukraine, Uzbekistan and Belarus to almost 25 million subscribers.

Deutsche Telekom, which has made eastern Europe a focus of its expansion strategy, has been selling down its MTS stake because it has no chance of ever wresting a majority in the company from financial holding AFK Sistema (AFK.YY).

Andrei Bliznuk, head of investor relations at Sistema, said MTS is one of Sistema's most prized assets and the company has no plans to cut its interest.

Privately-held Sistema has interests in a range of industries, but derives the lion's share of revenue from telecoms assets, including mobile and fixed-line operators and Internet providers. It owns 51% of MTS.

Sistema even plans an IPO itself to raise money to participate in the privatization of the state-owned telecoms holding OAO Svyazinvest (SVV.YY) in 2005 or 2006.

Bliznuk added that Sistema respects and supports any decision by its long-standing partner Deutsche Telekom and also takes the increased free-float as positive news.

Bonn-based Deutsche Telekom already lowered its stake in MTS to 25.1% from 40% last year as part of a wide-ranging debt reduction program. Executives had recently made it clear that MTS was a financial investment, sparking speculation that a sale was on the agenda.

The company has offloaded other assets that it was unable to increase to a majority holding.

Deutsche Telekom has plenty of uses for the cash raised from the sale.

The company in November said it will resume dividends, paying out as much as EUR2.6 billion to shareholders for 2004. It is buying out the minorities in Internet unit T-Online International AG (TOI.XE), a deal that will cost around EUR3 billion; and it needs cash to fund expansion in the U.S., where the proposed merger of Sprint Corp. (FON) and Nextel Communications Inc. (NXTL) could raise the competitive bar for its T-Mobile USA wireless unit.

The U.S. merger plans mean Deutsche Telekom faces "significant tactical as well as strategic decisions in the U.S," analyst Hellgren said. The auction of new frequencies in the U.S. will require investments of up to $2 billion, he noted.

UFG's Obukhova said if Deutsche Telekom needs more cash it may sell its remaining stake in MTS, probably also on the open market, as a 13% stake isn't likely to interest a strategic investor.

Company Web site: http://www.telekom.de

-By Taska Manzaroli; Dow Jones Newswires; +49 30 2888 410; taska.manzaroli@dowjones.com

(END) Dow Jones Newswires"

Posted to the site on 16th December 2004