Mobile TeleSystems, Russia's leading mobile communications operator and one of the largest mobile operators in Eastern Europe, has acquired a 57.7% stake in Ukrainian Mobile Communications (UMC), the second largest Ukrainian mobile operator, for €194.2 million.

In November 2002 Mobile TeleSystems signed a purchase agreement for 57.7% of UMC's shares. Under the agreement, Mobile TeleSystems was to acquire the 16.3% shareholdings held by Deutsche Telekom and Dutch company KPN Telecom for $55 million apiece, and the 25% stake held by Urktelekom, Ukraine's state owned telecommunications operator, for $84.2 million. In addition, Mobile TeleSystems entered into option agreements with Danish company TDS for the purchase of its 16.3% stake for $55 million, and with Ukrtelekom for the purchase of its remaining 26% stake for $87.6 million.

According to Ukrainian merger control legislation, an acquisition is subject to the prior authorization of the Anti-monopoly Committee of Ukraine if the following thresholds are met:

  • The aggregate worldwide asset value or sales turnover of the participants in the previous fiscal year exceeded €12 million;

  • At least two participants have a worldwide asset value or sales turnover of over €1 million; and

  • The asset value or sales turnover in Ukraine of at least one participant exceeds €1 million.

Several interested parties attempted to obstruct completion of the transaction on the grounds of its non-compliance with Ukrainian competition law. As Mobile TeleSystems had publicly announced the deal long before the application seeking Anti-monopoly Committee authorization was filed, these parties appealed to the committee stating that Mobile TeleSystems had effected the transaction without prior authorization for its acquisition of the controlling stake.

In November 2002 the Anti-monopoly Committee confirmed that Mobile TeleSystems had not applied for authorization. It further explained that under Ukrainian competition law, the parties must obtain such authorization before gaining control of the company. However, there is no notification deadline and the parties may apply for authorization at any time, as long as this is obtained prior to the actual transfer of shares. Therefore, the conclusion of a share purchase agreement without notifying the Mobile TeleSystems to this effect cannot constitute a violation of the merger control regime.

In January 2003 a minority shareholder of Ukrtelekom filed a lawsuit with the Kiev Commercial Court, seeking to prevent the sale of Ukrtelekom's interest in UMC. In particular, the plaintiff sought to invalidate the decision of the Cabinet of Ministers of Ukraine to approve Ukrtelekom's sale of its interest in UMC. However, the court dismissed this suit.

In February 2003 Mobile TeleSystems applied for, and obtained, Anti-monopoly Committee authorization for the deal. Despite the strong resistance to and negative publicity surrounding the transaction, the committee concluded that it did not adversely affect competition in the telecommunications sector.

Ukraine's mobile communications market has experienced significant growth in the past few years and the market is now characterized by intense competition. Four operators currently provide Global System for Mobile Communications services. Together, major competitors UMC and Kyivstar GSM control about 95% of the mobile communications market.

For further information on this topic please contact Igor Svechkar or Olena Repkina at Shevchenko, Didkovskiy & Partners by telephone (+380 44 230 6000) or by fax (+380 44 230 6001) or by email ([email protected]).