Far from being shut out of today's realignment in the Russian
cell phone space, VimpelCom (
) -- one of the only names U.S. traders can actually buy or sell
-- looks like a behind-the-scenes winner here.
) mysteriously refused to use its option to buy a controlling
stake in Russian phone retail chain Euroset, effectively leaving
rivals Rostelecom (thinly traded as
) and MegaFon to grab 51% of that company.
It looks like the deal will be structured with MegaFon boss
Alisher Usmanov trading Euroset owner Alexander Mamut his
blogging and online advertising company SUP Media in exchange for
the 4,000-store phone chain.
Grousing over why VIP did not use the option to take that
stake itself has pushed the company's shares down 13% in Germany
and we should expect some volatility today.
This is an opportunity to get into one of the winners in
Russian telecom at a fairly tempting discount for two
First, this move reflects Rostel and MegaFon's renewed push
downstream and down market within the communications
As a largely rural carrier, MegaFon has historically lagged
both VIP and sector leader Mobile Telesystems (
) in the coveted Moscow and St. Petersburg markets, where
higher-end services are more prevalent and boost average revenue
While MegaFon was supposedly targeting these more
sophisticated subscribers in recent quarters, moving down into
the actual handset sales channel indicates that they are still
trying to expand via relatively cheap and unprofitable handsets
Legacy wireline carrier Rostelecom's presence in this deal is
somewhat more interesting, but not really a threat to VIP or MBT.
ROSYY has maybe a 3% of the Russian cellular audience, so this is
more a bid for continued relevance than a true competitive
On that note, this deal does suggest that a merger between
MegaFon and Rostelecom is inevitable down the road.
Meanwhile, the fact that VIP seems eager to let this deal
happen suggest that they're ready to exit their own
in Euroset. Selling out could easily free up $3.5 billion to $4
billion and give them added flexibility in terms of
Most importantly, this lets VIP focus on managing its
onto the global stage.
This is a net positive for VIP and potentially a big entry
point on the stock.