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Comstar UTS: Arbitrage or speculation

The MTS offer in relation to the broadband operator and Paystar Comstar-UTS gives you a chance to earn up to 10% on the shares of the latter

The most intriguing investment idea in the telecommunications sector in the stock market remains a voluntary offer to buy Comstar shares by its MTS parent structure. Let me remind you that on July 15, the largest mobile operator announced that before September 21, it will accept applications from Comstar shareholders to buy out their securities at 220 rubles per share (or $ 7.16 per GDR). To current quotes, this implies an upside of 12% and 10.5%, respectively. It would seem that a great opportunity for arbitration - buy now, present to the offer and wait for money in early October, but not everything is so simple. MTS will buy only 9% of free-float, in other words, if all 35% of the outstanding securities will be offered, then only every fourth share will be repurchased.

In order not to appear at first glance, MTS is not a charitable organization (organizing such arbitrations), it buys out a worthy telecommunications asset from the market in anticipation of its further growth. At the end of 2009, Comstar had 1.2 million broadband Internet access (BBA) subscribers, of which 812 thousand were in Moscow, where the operator controls MGTS , whose total client base exceeds 3.6 million households. Thus, Comstar plans to actively “develop” this base by offering broadband access and pay TV to MGTS clients, as well as actively developing in the regions.
Having bought out 9% of the market, MTS will collect 75% of Comstar shares, which will allow it to begin joining the parent structure. “Dissenting” minority shareholders in this case, of course, can present their shares (or GDR) at the end of 2010 - the beginning of 2011 for redemption (reorganization gives them such an opportunity). However, despite the willingness of Comstar to buy back its securities at 212.85 rubles, both companies honestly warned that the amount spent on this (the second after September’s ransom) will be no more than 10% of the net asset value according to RAS for Comstar . This figure will be calculated on the last reporting date, however, for reference, I note that 10% of the NAV at the end of the 1st quarter, according to Screen, amounted to only 5.4 billion rubles for the subsidiary. That is, it could acquire only 6% of the shares from the "dissenters". Holders of the remaining 19% of securities will be forced to sell shares on the market, or change them to MTS shares.

This scheme, which is very inconvenient for minority shareholders, was disturbed by the well-known investment fund Prosperity Capital Management (PCM), which rightly dubbed the MTS offer unprofitable and expressed a desire to collect 25% of minority votes to resist reorganization. Representatives of the fund said that in July, holders of 14% of Comstar’s shares were against joining on such terms. In Prosperity they said that they were going to collect the 25% of shares necessary for the “bloc” by December.

Information appeared in the media that the PCM still adheres to its decision - its “subsidiary” fund Prosperity Russia Domestic Fund has shifted from the shares of MTS to Comstar. The operator’s shares are now concentrated in this fund at $ 13.94 million or 0.53% of its share capital. In total, according to various estimates, the fund controls about 2% of Comstar. In addition, if Prosperity began to buy shares from the market, then a further increase in the stake is possible. Not on the Russian market, of course: in the period from the announcement of the offer until mid-August, only 0.054% of the shares were bought on the MICEX and RTS at the auctions - sold, taking into account over-the-counter transactions. The main trading activity was on the LSE, where from July 15 to August 10, 3.34% of Comstar's share capital passed through the auction. I believe that Prosperity was involved in the purchase and could buy about 1% of its other funds, information about which does not disclose.

In this case, there are 2 options for the development of the situation .

1. Prosperity persuades the holders of 25% of Comstar's securities not to present them for redemption. Then you can play against the fund and its partners by buying papers on the MICEX and presenting them to the current offer. Then, in fact, your entire position will be purchased by MTS. The operation can bring up to 12% in 2 months.

2. Prosperity together with partners participates in the current offer. In this case, if you are also in it, then MTS will buy only every fourth declared paper, and then naturally - a gap down.

Summary. I recommend the shares of Comstar to the purchase now, because they will pull up to the designated range of 220 rubles closer to the middle of September. At this time, they need to be sold somewhere at 216 rubles. Such an operation, according to my expectations, makes it possible to earn 7-9% per month.

Source: https://habr.com/ru/post/101553/

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