Merger with Svyazinvest

On April 05, 2012, Rostelecom announced a corporate reorganisation (the “Merger”), which envisages the merger of Svyazinvest into the Company. It is expected to enhance Rostelecom’s investment case by simplifying its shareholder structure and eliminate the cross ownership structure.

Svyazinvest is a holding company controlled by the Russian government. Its principal assets currently comprise 45.29% of Rostelecom ordinary shares, as well as certain other Russian telecommunication companies, such as OAO Central Telegraph (“Central Telegraph”) (51% of the ordinary shares) and OAO Giprosvyaz (“Giprosvyaz”) (74.9% of the ordinary shares). The Russian government also holds interests in the Company through the FASPM, which accounts for 7.43% of the ordinary shares and Vnesheconombank (VEB), which currently holds 2.45% of Rostelecom ordinary shares. Overall, the Russian government currently holds beneficially 55.16% of Rostelecom ordinary shares.

Svyazinvest was originally established primarily to hold interests in a number of regional telecommunications companies in Russia. Over the past few years, these regional operators have been merged into the Company, resulting in Svyazinvest’s principal remaining assets being its interests in the Company and Sky Link, as well as interests in certain smaller Russian telecommunications companies. The Russian government has therefore proposed a reorganisation of Svyazinvest, which will be carried out by merging it into the Company.

As of March 31, 2013 the following key steps in reorganizations have been made:

  • Signing the Presidential decree: Decree No. 340 for merging Svyazinvest into Rostelecom merger, was signed by the Russian President on March 24, 2012
  • Necessary governmental approvals have been obtained: SkyLink purchase, Svyazinvest’s additional share issue and transfer of additional telecom assets from Svyazinvest to Rostelecom, have been approved
  • Acquisition of SkyLink from Svyazinvest: a non-cash transaction for a 1.91% of treasury shares that are on the balance sheet of Mobitel LLC (Rostelecom’s 99% subsidiary)
  • Svyazinvest’s additional issue: Svyazinvest carries out an additional issue. Rostelecom buys 140,315,416 shares in Svyazinvest to maintain its stake at 25% + 1 share until the merger
  • Corporate appraisal: the two companies are appraised by an independent appraiser and Rostelecom Board of Directors approved the price at which one ordinary and one preferred share will be bought from shareholders who vote against or do not take part in the voting over the company's reorganization. The buyback price of one ordinary share has been set at RUB 136.05, with the price of one privileged share at RUB 95.24 as set by the independent appraiser Ernst and Young.

The final phase of the merger is currently expected to occur as follows:

  • Shareholders’ meetings: both companies hold shareholders’ meetings to obtain approval of the merger
  • Mandatory redemption of shares from minority shareholders: Rostelecom is obliged by law to spend up to 10% of its net assets on mandatory redemption of shares from the shareholders who have voted against the merger or not voted at all, within 45 days from the shareholders’ meeting
  • Rostelecom’s additional issue: Rostelecom conducts an additional issue in favor of the Russian Property Ministry
  • Conversion of shares: Svyazinvest shares owned by the Russian Property Ministry shall be converted into Rostelecom shares; Rostelecom shares currently held by Svyazinvest will be cancelled

Following the completion of the merger, the Russian government will be a beneficial holder of at least 50% of the ordinary shares. Therefore, following the merger, the Russian government will remain the controlling shareholder of the Company.

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