Telekom Austria will initially buy a 70 percent stake in MDC's parent, Cypriot company SB Telecom, for around $1 billion in equity and debt, and has an option to buy the remainder of SB Telecom for $450 million in 2010, it said.
The deal expands chief executive Boris Nemsic's empire beyond his current focus on the Balkans into a less developed eastern market, where growth is slowing down as mobile phone usage is already approaching western European levels.
Analysts said the purchase, at around six times core earnings, was a good value despite higher political risk in Belarus, a country whose president, Alexander Lukashenko, is accused of hounding opponents and is barred from entering the European Union.
Telekom Austria shares rose against a weak sector.
"The purchase price is very, very cheap," said UniCredit analyst Alfred Reisenberger. "The company knows about the political risks -- perhaps that was the reason why the whole thing was so cheap. However, the political risk is manageable, the growth prospects are intact, and so bottom line is that this is a very good deal."
Shares in partly state-owned Telekom Austria jumped as much as 3.5 percent in early trade, but pared gains when the company said it would suspend share buybacks for more than a year.
Nemsic, who decided against three potential major deals during his tenure because they were too expensive or would not have given him control, said the price showed "discipline."
"The acquisition of MDC ... offers us an entry to the attractive telecommunication market in Belarus, while the terms of the transaction once again underline our disciplined approach to expansion," Nemsic said.
MDC, operating under the Velcom and Privet brands in Belarus, had 2.5 million subscribers and a market share of 42.5 percent last year. Its parent SB Telecom's current owners are Cypriot Ead Samawi and Austrian financier Martin Schlaff.
MDC's earnings before interest, tax, depreciation and amortization were 159 million euros ($225 million) last year, giving it a EBITDA margin of 60 percent. The deal gives MDC an enterprise value of 5.9 times next year's EBITDA, Telekom Austria said. It may top this up with an additional payment in 2010 linked to MDC's performance, which can bring the entire price paid to 6.5 times EBITDA in 2010.
"Six times EBITDA is quite an attractive condition," said Konstantin Belov, telecoms analyst at UralSib. "It does not look very expensive, especially if you look at current valuations of Russian telecoms."
MTS and VimpelCom are both valued at around seven times next year's EBITDA, he said.
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