Merger with Svyazinvest

On April 05, 2012, Rostelecom announced a corporate reorganisation (the “Merger”), which envisages the merger of Svyazinvest into the Company.

Svyazinvest was a holding company controlled by the Russian government. Its principal assets comprised 45.72% of Rostelecom ordinary shares, as well as certain other Russian telecommunication companies, such as OAO Central Telegraph (80% of the ordinary shares) and OAO Giprosvyaz (75% of the ordinary shares). Before the merger the Russian government also held interests in the Company through Rosimuschestvo, which accounted for 7.43% of the ordinary shares and Vnesheconombank (VEB), which held 2.45% of Rostelecom ordinary shares. Overall, the Russian government held beneficially over 55% 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 were carried out by merging it into the Company.

As part of reorganization process the following key steps 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
  • Shareholders’ meetings: both companies held shareholders’ meetings and obtained approval of the merger
  • Mandatory redemption of shares from minority shareholders: the Company completed share buyback from shareholders who voted against the reorganisation, or abstained from voting, and acquired 6.5% of its own ordinary shares and 17.5% of preferred shares. The buyback amounted to RUB 30.253 billion
  • Rostelecom’s additional issue: the Board of Directors approved the decision to increase the Company’s share capital through the issue of an additional 1,582,234,000 ordinary shares. 1,071,502,300 of the newly issued shares were placed in favour of Rosimuschestvo, a major Svyazinvest shareholder while the remaining shares were only technically issued and cancelled in-line with legal requirements
  • Conversion of shares: Svyazinvest shares owned by Rosimuschestvo were converted into Rostelecom shares; Rostelecom shares held by Svyazinvest on the date of merger were cancelled

On 1 October 2013, the Company’s reorganization was essentially finalized. It enabled the Company to enhance Rostelecom’s investment case by simplifying its shareholder structure and eliminating the cross ownership structure.

Following the completion of the merger, the Russian government, represented by Rosimuschestvo together with Vnesheconombank, became a beneficial holder of more than 51% of the ordinary shares. Therefore, following the merger, the Russian government remained the controlling shareholder of the Company.