Veon sells Russian operation to management

Netherlands-based holding company Veon has sold its Russian operation VimpelCom, which operates under the Beeline brand, to its management.

The company said that following a competitive process, it had entered into an agreement to sell its Russian operations to certain senior members of the management team led by current CEO Aleksander Torbakhov.

The management buy-out of VimpelCom implies an expected enterprise value of approximately RUB370 billion, representing an expected enterprise value/2022 EBITDA multiple of 3.2.

On a standalone basis, for the year ended 30 September 2022, VimpelCom generated revenue of RUB339 billion and EBITDA of RUB115 billion.

Veo will receive total consideration of RUB130 billion from the deal, to be paid primarily by VimpelCom taking on and discharging certain Veon debt.

The deal, subject to regulatory approval, is targeted for approval on or before 1 June 2023, with options on both sides for extensions in case any required regulatory license has not yet been received.

“After considering numerous options, I am confident that the agreed sale of Veon’s Russian operations to the VimpelCom management team represents an optimal solution for Veon, its Russian operations and the stakeholders of both companies, including customers, shareholders and creditors, as well as employees both in and outside of Russia. Veon is committed to ensuring the transaction is seamless for staff and customers in Russia, with no disruption to the services currently provided,” said Kaan Terzioğlu, CEO of Veon Group.

“This transaction will be equity accretive, result in significant deleveraging of Veon’s balance sheet and will enhance Veon’s credit profile.”

Veon’s Kazakhstan operations will be transferred to Veon Holdings as part of the deal, with the company taking direct ownership of the group’s 75% stake in Kar-Tel, which operates under the Beeline brand.

Although the sale represents a massive discount on the value of VimpelCom, many exits from Russia in recent months have not involved any money changing hands at all.

The agreement also includes a customary provision that enables Veon to benefit from a potential subsequent event, including a sale of VimpelCom at a higher valuation, for a period of 30 months following closing, and provides for typical termination rights in favor of Veon in case of a change in control of the buyer entity.

Veon announced that it planned to exit Russia earlier this month.

The company’s largest shareholder is LetterOne, the investment vehicle of sanctioned Russian billionaire Mikhail Fridman, which holds a 48% stake. Fridman stepped down as a director of LetterOne following the imposition of sanctions after Russia’s invasion of Ukraine.

The invasion saw Veon’s share price nosedive. The Beeline business accounts for just over half of Veon’s revenues, amounting to US$5.2 billion for the first nine months of the year, and just under half of its EBITDA.

Veon has been placed in a difficult situation by the war, as it also owns Ukrainian operator Kyivstar, and Ukraine is its third largest market. The company has also seen lenders threaten to review their relationship with it following Russia’s aggression.