OREANDA-NEWS. January 15, 2010. Svyazinvest is still interested in acquiring a controlling stake in Megafon, according to Communications Minister Igor Shegolev, quoted in Vedomosti. Only about 30% of the company appears to be available, while Alfa and TeliaSonera do not intend to sell their interests, reported the press-centre of OTKRITIE Financial Corporation.

View: We believe that a deal could take place if the government offered a significant premium for the Alfa stake, though the figure would be in the billions of dollars and such decisions take far too long. For example, it was a much easier decision to buy back a 25% stake in Svyazinvest from Sistema for US1.3bln; completion of that deal has already taken a year and is still ongoing.

The most likely scenario in our view is that it will take the government another 6 month to find the money, during which time the market price will increase by 25%, so that the deal gets scrapped or delayed. Meanwhile Svyazinvest will pursue organic expansion into the mobile space. The best scenario for MTS and Vimpelcom would be if Svyazinvest merged with Megafon, since it would reduce the number of major players in the market. Of course, one of the two could offer its network to Svyazinvest and thereby reap some benefits, though in this scenario we would lower the estimate for the mobile market as a whole.

Action: We take the news as positive for MTS and Vimplecom, in spite of the tenuous likelihood that the deal will actually materialize anytime soon.