BELARUS NEWS AND ANALYSIS

DATE:

03/10/2007

Telekom Austria Agrees to Buy Mobile Digital Stake

By Kenneth Wong

Oct. 3 (Bloomberg) -- Telekom Austria AG, the largest Austrian phone company, agreed to acquire control of Mobile Digital Communications to add 2.7 million customers in Belarus.

Telekom Austria will buy 70 percent of SB Holding, the investment company that controls Minsk-based Mobile Digital, Telekom Austria said in a statement today. The enterprise value of the stake is about 730 million euros ($1.03 billion), and Telekom Austria has an option to buy the remaining stake in the fourth quarter of 2010.

The purchase is the biggest by Vienna-based Telekom Austria since Boris Nemsic became chief executive officer last year. Nemsic took the former monopoly into Serbia and the former Yugoslav Republic of Macedonia by buying mobile-phone licenses, and plans to make a purchase in Bosnia-Herzegovina this year.

``The acquisition of MDC is the consistent execution of our strategy for profitable growth in eastern and south-eastern Europe,'' Nemsic said. ``The terms of the transaction once again underline our disciplined approach to expansion.''

The price, including debt, values Mobile Digital at about 5.9 times the company's estimated 2008 earnings before interest, tax, depreciation and amortization, Telekom Austria said. UBS AG analysts last month valued Mobile Digital at 8.5 times its earnings. Mobile Digital will increase Telekom Austria's earnings per share starting in 2008, the company said.

Telekom Austria shares rose 9 cents, or 0.5 percent, to 18.80 euros in Vienna yesterday. The stock has dropped 7.4 percent this year.

High Handset Ownership

Belarus, a nation of 9.7 million people, has 6.3 million mobile-phone subscribers, whereas in Austria the number of handsets is higher than the total population. Mobile-phone ownership in Belarus may rise to 79 percent by the end of 2008 in a market worth $780 million, according to estimates by OAO Mobile TeleSystems, Mobile Digital's bigger rival with a 54 percent market share. ZAO Best and BelCel, two smaller operators, share the remainder of the market.

Telekom Austria, which sells mobile-phone services in Austria, Slovenia and Croatia, has been expanding its footprint since 2005 when it bought Bulgaria's largest wireless company, Mobiltel. Telekom Austria confirmed reports it was in talks to buy a Belarusian company on Sept. 10, without identifying the target.

Telekom Austria had a second-quarter profit of 130.6 million euros, almost unchanged from a year earlier, as additions to Internet and mobile subscribers offset losses of traditional phone-line customers in the domestic market.

Expansion Budget

Mobile Digital was founded in 1998 as a joint venture between SB Holding, a Cypriot company owned by Id Samauwi, and the Belarusian government. SB Holding, which held 49 percent of Mobile Digital, bought the remaining stake from the government, Russian news agency Interfax reported on Sept. 10, citing Ivan Rak, the first deputy communications minister in Belarus.

Austria's government owns about 27 percent of the former monopoly. Telekom Austria said on April 24 it budgeted 2.7 billion euros for expansion in eastern Europe and share repurchases through 2010. An additional 1.4 billion euros was earmarked for dividend payments in the period.

To contact the reporter on this story: Kenneth Wong in Berlin at kwong11@bloomberg.net .

Source:

http://www.bloomberg.com/apps/news?pid=20601085&sid=awKM1XbJLrY4&refer=europe