Tele2 and Kazakhtelecom are to combine their mobile assets in Kazakhstan to create a more robust third player in the market focused on data, and with strict corporate governance. Tele2 has also got an exit strategy written into the agreement if things do not go to plan.
Sweden’s Tele2 (STO:TEL2) and Kazakhtelecom (KASE:KZTK) have agreed to combine their mobile assets in Kazakhstan to create a more robust third player with 5.6 million customers.
The joint venture, to be incorporated in the Netherlands, will house Tele2 Kazakhstan’s established mobile business and Kazakhtelecom’s mobile unit Altel – a smaller player holding the country’s only 4G licence – reducing the number of MNOs in the market from four to three.
VimpelCom’s Beeline subsidiary and Kcell, which TeliaSonera is looking to sell alongside its other assets in Eurasia, dominate the Kazakh mobile market with a combined 78% market share.
Tele2’s CEO Allison Kirkby (pictured) said Altel’s 4G network created an opportunity to get ahead in data services. While the JV will only have 22% of the country’s subscribers and 18% of total service revenue, it will carry 76% of mobile data, which Kirkby is aiming to monetise.
“This transaction will enable our customers to gain access to Altel’s 4G network and to benefit from its accelerated rollout across Kazakhstan,” she said.
“As a result, both consumers and shareholders will benefit from the synergies generated by the joint venture.”
Tele2 will have management control of the JV, 51% of the voting rights and 49% of the equity, while Kazakhtelecom will have 49% of the voting rights and 51% of the equity.
Ondra Partners advised Tele2 on the deal, which the parties hope to complete in the first half of 2016 pending regulatory approval.
Kazakhtelecom has a call option to buy Tele2’s shares after three years and Tele2 has a symmetrical put option.
Exit option
Explaining why the put and call options had been included, a Tele2 spokesperson said this created flexibility, providing multiple options for various future scenarios.
“We have the possibility to exit after three years and although that is not our intention currently, we will, as always, look to maximise value for the business and our shareholders,” the spokesperson said.
To realise this ownership structure, Tele2 has bought out its minority partner in Tele2 Kazakhstan. Asianet will receive US$15m and a future earn-out equivalent to an 18% economic interest in the JV for its 49% stake.
Once the earn-out is taken into account, Tele2 has a fully diluted economic stake of 31%, as well as a call option to acquire the 18% in three years’ time. Asianet has a symmetrical put option.
Altel folded into the JV on a debt-free basis, while SKr3bn (US$351m) in Tele2 Kazakhstan shareholder loans from its parent will transfer to the JV. Kazakhtelecom has committed to providing debt financing to the JV until it reaches a debt parity in line with the 51%-49% equity split.
Corporate governance
In the statement announcing the transaction, Tele2 was keen to emphasise the corporate governance safeguards built into the merger agreement. Its Nordic rivals Telenor and TeliaSonera are undergoing corruption investigations in neighbouring Uzbekistan.
The JV will adopt Tele2’s corporate governance standards, procedures and code of conduct, which Kazakhtelecom has committed to follow. Tele2 will appoint the entire management board, apart from the CFO, as well as half of the board of directors, including the chairman, who will hold the casting vote.
Tele2 added that it has reserved the right to exit the joint venture in the event that Kazakhtelecom breaches the code of conduct. The two partners’ relationship will be governed by the law of England and Wales.
Commenting on the tie-up, Kuanyshbek Yesekeyev, chairman of Kazakhtelecom’s management board, said: “We are particularly pleased to team up with Tele2 since it is one of the industry leaders in corporate responsibility and corporate governance.”
