Telekom Austria eyes Belarus purchase

By Boris Groendahl

VIENNA (Reuters) - Telekom Austria (TELA.VI: Quote, Profile, Research), which is expanding in central and eastern Europe, said it was in talks about a possible acquisition in Belarus but tried to play down investor fears it may overpay for the asset.

Telekom Austria said in a statement on Monday that it could not disclose details about its plans at this stage. It did not give the name of the target or the possible size of a deal, but pointed to its track record of cautious acquisition pricing.

"Telekom Austria reiterates its strategy of profitable growth and continues to feel bound by the financial discipline it has proven in the past," it said in the statement.

Chief Executive Boris Nemsic had told Reuters last month he could spend more than 2.65 billion euros ($3.63 billion) for an asset in central or eastern Europe if the right deal came along. But he only identified a Bosnian operator as a possible target.

Nemsic was outbid in two auctions in the former Yugoslavia recently -- that of Serb mobile operator Mobi63 when he lost out against Telenor (TEL.OL: Quote, Profile, Research), and that of Bosnia's Telekom Srpske, where he called the winning bid by Serb Telekom "crazy".

Telekom Austria earlier this year said it would return cash it did not use on acquisitions to shareholders.

Shares in Telekom Austria rebounded from losses in early trading to stand up 0.4 percent at 18.58 euros by 0932 GMT, outperforming the flat DJ Stoxx Telecoms index (.SXKP: Quote, Profile, Research).

Austrian newswire APA reported on Friday that Telekom Austria was looking at buying a Belarus mobile operator for more than 1.6 billion euros ($2.2 billion), citing financial sources. Analysts doubted that price tag.

While there is broad consensus that the target is Velcom, Belarus' second-biggest mobile operator after MTS Belarus, co-owned by Russia's Mobile TeleSystems (MBT.N: Quote, Profile, Research), scant data about Velcom makes its value difficult to assess.

Exane BNP Paribas analyst Justine Dimovic put the value of Velcom at around $800 million, based on its 2.6 million clients at the end of last year, and the $310 per subscriber Vimpelcom (VIP.N: Quote, Profile, Research) paid last month for Tele2's (TEL2b.ST: Quote, Profile, Research) Russian unit.

Morgan Stanley analyst Christopher Fremantle said in a note to clients that based on comparable operators' data, Velcom's revenue could be around 200 million euros, and its core earnings margin about 50 percent of that.

"Applying these simplistic assumptions with an acquisition price of 1.6 billion euros would imply a heavily cashflow dilutive deal," he said.

While there is little public financial detail about Velcom, its ownership structure is muddy as well. Russian news agency Interfax reported last month that Cyprus-based SB Telecom had taken over all of Velcom by buying out the Belarus government.

But Velcom declined to comment on that information. SB Telecom gives an address in Cyprus' capital Nicosia on its website. The address belongs to the offices of PriceWaterhouse Coopers, but officials there said they did not know SB Telecom.

(Additional reporting by Stelios Orphanides in Nicosia and Andrei Makhovsky in Minsk)