MegaFon partners to create new company for industrial digitisation in Russia

MegaFon, Gazprombank, Rostec and USM Holdings Join Forces to Develop Digital Services in Russia

8 May 2018

Moscow, Russian Federation (08 May 2018) — Public Joint Stock Company “MegaFon” (LSE: MFON), a pan-Russian operator of digital opportunities (“MegaFon” or the “Company”), announces its intention to incorporate a joint venture with JSC Gazprombank, a state corporation Rostec and USM Holdings to develop digital services and implement projects in the digital economy. The partnership will allow to unite these leading businesses’ expertise in their sectors — telecommunications, IT, financial services and hi-tech sectors of industry — to enter new markets and create cross-sector industrial solutions.

A new company — JSC MF Technologies (MFT) — has been set up to make best use of the partners’ resources and skills. MegaFon will contribute 11,500,100 Class A shares of Mail.Ru Group Limited (LSE: MAIL) (“Mail.Ru”) in MFT, comprising a 5.23% economic share, and providing 58.87% of votes. Lefbord Investment Limited (“Lefbord”), a 100% subsidiary of MegaFon, is the current shareholder of MFT.

Lefbord will sell a 35% stake in MFT to Gazprombank, a 9% stake in MFT to USM and an 11% stake in MFT to Rostec (together, the “Transaction”). Following the Transaction, Lefbord will own the remaining 45% of MFT. The Transaction values 100% of shares in MFT at $450 million, which envisages a 29% premium to the market price of Mail.Ru GDRs as of 4 May 2018. These terms imply a higher premium as compared to the purchase of a 15.2% economic interest in Mail.Ru from USM Holdings in February 2017. MegaFon retains 21,940,148 shares directly, representing an economic stake of 10% in Mail.Ru, and has no plans to sell these shares. Additional information on this share acquisition can be found at: https://corp.megafon.com/investors/news/capital_market_releases/20170209-1853.html.

Morgan Stanley & Co. International plc has provided a financial opinion letter in connection with the Transaction to the Board of Directors of MegaFon.

Jointly with its partners, MegaFon plans to implement a number of digital projects, including creating software products to digitalize the operations of major companies and enterprises, and developing blockchain-based solutions. The most important project on which active work is already being conducted is the creation of a Financial Digital Platform on the basis of which the parties will develop hi-tech services, including payment, credit and other digital products. The partners will also create a fund, Digital JV, to invest in tech start-ups.

The Transaction deal is beneficial for MegaFon and its shareholders both strategically and financially. Digital partnership presents the operator with an excellent opportunity to monetize its investment in Mail.ru; since MegaFon purchased stock in February 2017, Mail.ru shares have risen by more than 70%. Thus, MegaFon will secure $247.5 million in cash from the sale of shares to MF Technologies pre-tax, which will help reduce the Сompany’s debt.

“MegaFon endeavours to play a leading role in Russia’s digital future. Today we can observe the integration of efforts of the leaders in the telecom, high-tech and financial sectors to create new digital products and services as a worldwide trendsetter. Therefore, we are to join forces with the leading Russian players in these markets to build a digital bank and be more actively involved in the corporate segment.. I am confident that by involving strong partners we can be engaged in more projects and ensure access for MegaFon to new growing markets in the digital economy,” said Sergey Soldatenkov, CEO, MegaFon.