Purposes for Reorganization
The purpose of the reorganization is to establish on the basis of Rostelecom an integrated operator capable to achieve leading positions in Russian telecommunications market.
The creation of integrated operator will allow to substantially increase competitive ability of the merged company by providing full range of telecommunication services in Russia as well as by elimination of conflict of interests between companies participating in the merger.
In addition, the reorganization aims to reach the following goals:
- To realize synergies from merger process by:
- Optimization of capital expenditures due to cost reduction on construction of overlapping infrastructure and centralization of equipment procurement;
- Optimization of administrative and management expenses by economies of scale, centralized management and elimination of overlapping functions.
- To raise flexibility in adopting strategic and managerial decisions by management levels’ reduction.
- To enhance the share liquidity of the merged company by switching of all the minority shareholders of the merged companies, including the holders of preferred shares, into a single share.
- To strengthen credit rating and lower the cost of borrowing by bolstering the financial stability and market positions of the merged company.
The achievement of these goals is expected to entail market capitalization of the merged company.
The key steps that form the second stage of the reorganisation process are as follows:
- Merging Svyazinvest with Rostelecom in compliance with the Russian Federation Presidential Decree No 340 “On the Reorganisation of Rostelecom OJSC” dated March 24, 2012. This will eliminate cross ownership between Svyazinvest and Rostelecom and will lead to the Federal Property Management Agency receiving a direct stake in Rostelecom’s share capital;
- 20 subsidiaries of Rostelecom and Svyazinvest, which are either 100% directly owned by Rostelecom or are owned through Rostelecom’s and Svyazinvest’s 100% subsidiaries, will be all merged with Rostelecom at the same time;
- Redemption of Rostelecom’s shares held by Svyazinvest on the date of merger.
As a result of implementing the above measures, the amount of shares is expected to decrease after the cancellation of a portion of the treasury shares. This will allow the Company’s asset portfolio to increase by 1 share.