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Главная страница » One of the lifecell purchase scenarios is the resale of Orange or Deutsche Telekom. Why would the French have a Ukrainian operator?

One of the lifecell purchase scenarios is the resale of Orange or Deutsche Telekom. Why would the French have a Ukrainian operator?

    On the eve of 2024, the Turkish company Turkcell announced the sale of its Ukrainian assets : 100% lifecell, Ukrtower and Global Bilgi. “We are talking about a company that would not have found anyone to buy it for $1 five years ago. We are talking about a company that has never received even $1 in profit before,” lifecell CEO Ismet Yazidzhi emphasized .

    So how did the buyer, the French investment firm NJJ Capital, be persuaded to take such a risk during the war? Why did Turkcell decide to leave our market after 18 years of work in Ukraine? What surprises can the French prepare for more successful competition with “Kyivstar” and “Vodafone Ukraine”? Lifecell does not comment on such questions until the final closing of the deal. And this process can drag on for a long time: recently AMCU returned to the French the application for the acquisition of the operator. “The materials attached to the application did not contain comprehensive information, which is necessary for their consideration by the committee,” the department noted. So Mind went to the experts.

    How successfully did Turkcell advance on the Ukrainian market? The operator lifecell (until 2016 LLC “Astelit”, TM Life:)) started working in Ukraine with a “slight” delay – since 2005. At that time, “Kyivstar” and “Vodafone Ukraine” (formerly UMC, MTS) had been competing on the market for more than 10 years. However, the founders of the company – Turkcell (55%) and SCM Rinat Akhmetova (45%) – decided to take a risk. But as a result, we got long unprofitable years. The operator ended 2006 with a net loss of $198 million, 2007 – $168 million, 2008 – $336 million, 2009 – $112 million, 2010 – $101 million, 2011 – $76 million, 2012 – $56 million, 2013 – $33 million, 2014 – $465 million, 2015 – $202 million.

    In the same year, Akhmetov went out of business: Turkcell bought 45% of the shares from SCM for $100 million.

    In 2016, the company received its first ever net profit ($36.3 million). However, the main factor of the takeoff was the sale of lifecell towers of the company “Ukrtower” (also owned by Turkcell) for $52 million. Unprofitable years followed again: 2017 – “minus” $19 million, 2018 – “minus” $48 million, 2019 – “minus” $43 million

    November 2020 was a turning point. And for four years in a row, the operator has shown a net profit: 2020 – 2.59 billion UAH, 2021 – 610.9 million UAH, 2022 – 972.3 million, three quarters of 2023 – 1.68 billion UAH . It is interesting that lifecell also reached a record for wartime revenue dynamics: growth by 26% over the three quarters of 2023. While the pace of competitors is lower: Kyivstar – 12.1%, Vodafone Ukraine – 8%.

    Also, lifecell became the only operator that managed to show an increase in the subscriber base over the last year (by 900,000 to 9.1 million users) and almost return to the pre-war figure (the company ended 2021 with 9.2 million subscribers). At “Kyivstar” during the Great War, the number of customers increased by 2.2 million – to 24.1 million according to the results of the III quarter of 2023 , at “Vodafone Ukraine” by 3.8 million – to 15.2 million.

    So why has Turkcell decided to exit a consistently profitable business now? According to unconfirmed information, the head office put the asset up for sale as early as 2022, the deal started in May 2023.

    “I think the key factors are the war and the risks associated with it and the way to payback. Turkcell reached a logical payback point, assessed the prospects, including the war, and probably decided not to miss a good moment to exit,” telecom expert Anatoliy Frolenkov suggests.

    Telecom expert Oleksandr Glushchenko names two more factors. “Firstly, the sale was stimulated by the unstable economic situation in Turkey. There is an opinion that it is important for Turkcell to focus on its own market. And assets in troubled markets carry a number of financial risks. Çukurova Group and other co-owners of Turkcell are multidisciplinary businesses. Probably, they want to invest the money from the sale in more profitable projects”, – analyzes the expert.

    Another factor is the lack of funds for successful competition in Ukraine.

    “The operator never became the second in the market. In order to develop further, you need to invest in FSHSD (fixed Internet). “Kyivstar” has approximately 1 million FSSD subscribers, “Vodafone Ukraine” after the acquisition of Vega and “Freenet” has several hundreds of thousands, and lifecell has zero. That is, from the point of view of market competition in the current conditions, lifecell needs significant investments to acquire Internet providers (building networks independently is expensive and time-consuming). Therefore, probably, Turkcell calculated all the risks, saw that turbo-acceleration was needed, and decided to transfer the asset to an investor with a reserve of energy and a greater inclination to adventurism,” explains Oleksandr Glushchenko.

    Who are these “adventurers”? The buyer is the French company NJJ Capital. Its owner, Xavier Niel, is a local businessman, No. 439 on the Bloomberg Billionaire Index list with a fortune of $6.08 billion. The billionaire has been investing in the telecom business of the European Union for a long time. His Iliad group provides telecom services under the Free brand in France and under the Play brand in Poland. Xavier Niel is also the owner of communication operators Monaco Telecom (Monaco), Salt Mobile (Switzerland) and Eir (Ireland).

    In addition to telecom, the businessman has media assets (share in Le Monde newspaper), he is a board member of Kohlberg Kravis Roberts (an American investment company on the Fortune 500 list) and the French development company Unibail-Rodamco-Westfield. Previously, Niel had already cooperated with Ukrainian business: UNIT Factory was launched in UNIT City based on the license of the “42” programming school, which was founded by the billionaire.

    Why do the French need lifecell? According to Anatoly Frolenkov, theoretically, the new owner needs the asset for three scenarios. “The first unlikely one is a quick resale. As far as I know, such speculative deals are not the profile of the French. The second, most likely, is the strengthening of lifecell’s position through the purchase of FSSD operators and their subsequent sale to Orange, Deutsche Telekom, Vodafone, etc. strategists. The third scenario – the French become strategic investors in Ukraine for a long time, and also buy local players in the FSHSD segment. Plus, the French have access to various subsidy programs, EU recovery funds. Perhaps, in this way, they are thinking of attracting preferential infusions into the infrastructure,” the expert explains.

    Oleksandr Glushchenko believes that lifecell needs NJJ Capital to expand to the East: “When the group has many assets in different countries, synergy is important. It is necessary to increase the subscriber base in order to show this synergy to the shareholders. And even if it is a troubled country, adding more than 9 million customers is a good indicator. And a subscriber in Ukraine costs an order of magnitude cheaper than in the EU.”

    The expert also suggests that the French strongly believe in Ukraine’s victory. “And they understand that after the victory over the Russian invaders, significant funds will be invested in our market. This belief should become a marker for other investors, especially those who are ready to invest in countries with force majeure circumstances: “Look, there is a business climate and you can take risks.” The purchase of lifecell could be a very positive sign for Western investors. Because it was not some unknown firm from offshore that entered the market, but a white European company,” explains Oleksandr Glushchenko.

    However, the return of the AMCU statement to the investor may shake this marker. ” In the last 30 years, the investment climate in Ukraine has resembled a patchwork row, where every small feudal lord or beach director believes that power and position are their private property, and they are allowed to monetize processes without forgetting about themselves. Private interest is higher than state interest. Question: who in their right mind will invest money in Ukraine, where, in addition to the factor of the aggressor neighbor, there are still such “invested” people? Oleksandr Hlushchenko suggests.

    Which of the Internet providers can be purchased? Anatoly Frolenkov suggests that the French are most likely to be interested in the purchase of Datagroup-Volia. “In addition to lifecell, it is not by chance that they also buy Ukrtower.” This is a unique company that rents towers not only to lifecell, but also to other operators. In the future, this service will gain momentum. I think the logical step is to join the backbone business of Datagroup. This will help to strengthen the position in the fixed Internet market as well,” suggests Anatoliy Frolenkov.

    Oleksandr Hlushchenko also believes that “Datagroup-Volia”, “Lanet”, “Tenet”, Prostonet and other players who are among the top ten in the market can prepare for possible negotiations. First of all, the French will consider Internet providers that work in territories with a concentration of lifecell subscribers. These are the players that are more profitable to buy: their subscribers have increased loyalty, which will help them compete faster and attract other subscribers without buying other providers.

    “The market is open and so dry that foreign investors can buy assets several times cheaper than they cost abroad. So, it is likely that players will be offered sales offers. But not everyone. Currently, many providers in Ukraine are a mix of telecom, “optimization” and hobby. No one will buy such assets. Therefore, it is important to stop playing dumping, think about how to increase the level of ARPU and look towards optimizing your activities according to the current legislation. That is, the whiter and more transparent the company is, the easier it is to verify that it is an LLC and not a set of FOPs, the greater the probability of sale,” Oleksandr Glushchenko clarifies.

    What can be the final amount of the deal? Turkcell does not disclose it at this time. He only clarifies that the nominal value of shares of lifecell is 12.7 billion UAH, “Ukrtower” – 1.96 billion UAH, “Global Bilgi” (network of call centers) – 47.2 million UAH. “Nominal value is the price of war. If the asset was sold in peacetime, it would be much higher,” says Oleksandr Hlushchenko.

    Before the full-scale war, telecom assets were valued at 4-4.5 EBITDA on average. Judging by the announced nominal value, now the multipliers have fallen significantly. Lifecell ended the first three quarters of 2023 with EBITDA of UAH 4.97 billion. The results for the year have not yet been announced, approximately this figure is UAH 7 billion.

    Anatoliy Frolenkov suggests that the final price will be slightly lower than the nominal price: “I think the Turks have offered a very “tasty” price.”

    When will the deal be finally closed? Maybe in a few months, informed Mind at lifecell before the news about AMKU. Currently, no one can predict the closing dates.

    Will this agreement prevent the possible nationalization of the lifecell stake? Theoretically, it should. We will remind: approximately 20% of Turkcell shares are indirectly owned by sanctioned Russian oligarchs Mykhailo Fridman, Petr Aven and Andriy Kosogov. In the autumn of 2023, the Shevchenkiv District Court of Kyiv seized 19.8% of lifecell’s authorized capital. The investigators had “claims” specifically against the Russian beneficiaries of Turkcell. After the sale of 100% of lifecell to the French, the criminal case should have been closed.

    However, the recent “movement” of the AMCU with the return of the application may indicate that a slightly different scenario is now “playing out”: first, the state nationalizes the share of lifecell, which is indirectly owned by Russian oligarchs, and then allows the purchase of the asset by a Western investor. Whether such a “multiple mover” will scare away NJJ Capital is an open question.