Reuters: Mergers News: UPDATE 2-Russia's Sistema tips agriculture a winner

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UPDATE 2-Russia's Sistema tips agriculture a winner Apr 26th 2012, 15:18 Thu Apr 26, 2012 11:18am EDT * Conglomerate sees potential deals in various sectors * Mulls bidding for stake in grain trader United Grain Co * CEO to propose $300 million share buyback in May * Posts Q4 net loss on India telecoms license write-off By Maria Kiselyova MOSCOW, April 26 (Reuters) - Sistema, one of Russia's largest conglomerates with assets ranging from oil to telecoms, is looking at a range of possible deals as it seeks to diversify into new business lines such as agriculture and infrastructure. "Opportunities in our M&A pipeline range from transport to logistics to infrastructure and forestry, mining and further agriculture assets, some of which we plan to announce in the near term," Chief Executive Mikhail Shamolin said on Thursday. Shamolin also told a conference call with analysts that Sistema, which had sales of $33 billion last year, was considering taking part in the privatisation of Russian state-owned United Grain Co (UGC). "Agriculture in Russia has strong investment potential. Russia has the lowest land prices compared to European, North and South American benchmarks," he said. Internal rates of return in that sector "can exceed 20 percent and we are considering further cluster acquisitions in 2012", Shamolin added. UGC is issuing additional shares to sell a stake of 50 percent minus one share in the company, allowing the government to retain majority control. Several parties have expressed an interest, including U.S. firm Bunge, Louis Dreyfus Commodities and Russian investment group Summa. Sistema recently set up an agricultural joint venture with members of the Louis Dreyfus family - which owns one of the world's four dominant agribusiness companies - with the aim to expand in the grains sector. It is also mid-way through other deals that could help grow the company, which owns media and technology assets and a controlling stake in oil producer Bashneft. Sistema's healthcare operation Medsi is merging with the Moscow government's healthcare assets, and the group is also restructuring its electricity business to focus on power grid operations. Sistema's London-listed shares were flat at 1311 GMT and down 1 percent in Moscow, in line with the broader market. Its shares are up 11 percent in the year to date but the company, which counts Russia's biggest mobile phone group MTS as part of its empire, still trades at a discount to its sum-of-the-parts valuation. Shamolin said he would propose a buyback of around $300 million worth of shares at the group's board meeting in May. Sistema will then cancel the shares, he said. UNACCEPTABLE PRICE Sistema slumped to a net loss in the fourth quarter of last year due to a nearly $700 million write-off related to a February decision by India's Supreme Court to cancel 122 telecom licenses held by eight operators, including Sistema, over alleged irregularities in the way they were awarded in 2008 The net loss was $530.2 million compared with a profit of $447.3 million in the year-earlier period. Net profit excluding one-off items was $261.4 million. India's telecoms regulator said this week that the price of a 2G spectrum in a reissue of licenses could be hiked tenfold, drawing howls of protest from operators. Based on the regulator's recommendation, which is not binding on the government, Sistema would have to pay around $6 billion to renew its rights to the licenses an d get rights to additional spectrum, s aid Shamolin. "This price is absolutely unacceptable ... So far it is only a recommendation and we hope for a more economically reasonable approach," he told reporters in Moscow. The company initially paid $460 million for the spectrum, and Shamolin said a fair price could not be "two or three times more than what we had paid." "I can definitely say that we are not married to this asset whatever happens, this is not our position," Shamolin added. He however stopped short of saying Sistema could exit the market. Link this Share this Digg this Email Reprints

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