Russia's Sistema may merge MTS, Comstar

By Anastasia Teterevleva and Douglas Busvine

MOSCOW (Reuters) - Russian services conglomerate Sistema (SSAq.L: Quote, Profile, Research, Stock Buzz) may one day merge telecoms affiliates Mobile TeleSystems (MBT.N: Quote, Profile, Research, Stock Buzz) and Comstar (CMSTq.L: Quote, Profile, Research, Stock Buzz), Chairman Vladimir Yevtushenkov told Reuters on Tuesday.

Such a move would make it possible to capitalize on the convergence of mobile and fixed-line services but would be premature now, Yevtushenkov, who owns 62 percent of Sistema, said at the Reuters Russia Investment Summit.

"Sooner or later it should become a single all-embracing company," said Yevtushenkov, who is 11th on Forbes magazine's list of rich Russians, with a fortune estimated at $9.1 billion.

"But to say that we need to do this today would be premature. No, we aren't ready for that," he said.

Sistema owns 52.8 percent of MTS, Russia's leading mobile phone company, and 51 percent of fixed-line firm Comstar. Both Sistema and Comstar are listed in London, while MTS American depositary receipts trade in New York.

"There exists a theory of convergence, the understanding that for an individual it makes no difference where he receives services. He should understand just one thing -- that he can receive them quickly and comprehensively," said Yevtushenkov.

MTS already plans to bundle services with Comstar and will offer them through a single billing system planned for launch around the end of the year, MTS Chief Executive Leonid Melamed told the Summit on Monday.

CONGLOMERATE DISCOUNT

Sistema, which also spans technology real estate, retail, banking, tourism and healthcare, suffers a "conglomerate discount" that has left its market capitalization around 30 percent below a sum-of-the-parts valuation.

Its shares have underperformed those of its main telecoms units this year and, analysts note, Sistema's market capitalization of $12.4 billion is about the same as the value of its MTS stake.

"Bearing in mind that we don't plan to sell shares tomorrow or the day after, this undervaluation doesn't matter much to us. But it is an embarrassment," Yevtushenkov said.

Yevtushenkov has considered spinning off subsidiaries to create shareholder value, but he saw no pressing need to do so because Sistema can raise debt financing to grow its business.

Instead, Sistema will focus on its non-public units to boost the value of the holding company. He ruled out holding an initial public offering of shares in banking unit Moscow Bank for Reconstruction and Development.

INTERNATIONAL AMBITIONS

Yevtushenkov approached Deutsche Telekom (DTEGn.DE: Quote, Profile, Research, Stock Buzz) last year in an attempt to create an international phone company that would have been second only to Vodafone (VOD.L: Quote, Profile, Research, Stock Buzz) in subscribers, but was rebuffed.  Continued...