VimpelCom/Orascom merger narrowly survives

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VimpelCom/Orascom merger narrowly survives

Russian giant nearly saw its plan thwarted by its second largest shareholder

By CAROLINE GABRIEL

Published: 20 December, 2010

READ MORE: M&A | Africa & Middle East | VimpelCom

The troubled merger of Russian giant VimpelCom with Middle Eastern operator Orascom gained narrow board approval, after it hit its biggest roadblock yet, with Telenor, a major shareholder in VimpelCom, saying it would not support the proposed deal.

However the terms of the merger still need to be amended to suit Telenor. Vimpelcom's supervisory board did approve the proposed takeover of Weather Investments. Six of the nine board members approved the transaction, including all three independent members and the three Altimo representatives, while Telenor's three members voted against the deal. As a result of Telenor's opposition, the board was unable to agree on amendments to the Vimpelcom shareholders' agreement needed for the deal to go ahead. Vimpelcom said its CEO will negotiate further with Weather the terms and conditions under which Weather would be willing to enter into a revised transaction, taking into account that the shareholder related agreements are unlikely to be signed and delivered.

The transaction would see VimpelCom acquiring Weather Investments, owner of Orascom, which in turn has operations around the Middle East, Mediterranean and elsewhere. This would catalpult the Russian carrier into the top five global wireless operators, for a price of $1.8bn in cash and 19% of voting rights in the enlarged group, diluting the main shareholders Alfa and Telenor. VimpelCom would also assume a large amount of Weather's debt.

Now, Telenor has issued a statement saying it considered the deal "not in the best interests of VimpelCom shareholders and therefore does not intend to support the transaction". This throws serious doubt on the plan. Although the Norwegian carrier cannot block the deal without the support of other shareholders, it does own a 36% voting stake and 39.6% economic interest in VimpelCom, only slightly less than its largest shareholder, Russia's Alfa Group.

"We strongly support VimpelCom's expansion in accordance with the principles agreed at the time [the new VimpelCom Ltd] was created. However, in our capacity as a shareholder of VimpelCom Ltd, we do not believe this transaction makes strategic or financial sense for VimpelCom's shareholders," said Telenor spokesman Dag Melgaard.

According to the Financial Times, Telenor is understood to be concerned that the cash generated by Weather/Orascom would be used to reduce its debt rather than provide dividends for VimpelCom shareholders. There are also problems with some Orascom units, notably Djezzy in Algeria, where there are fights over ownership.

Meanwhile, Russian expansion in telecoms continues in other areas, with an arm of the government expected to buy a 20% stake in Indian cellco SSTL, which uses the MTS brand. Russia's Sistema holds a 74% stake in SSTL, while local player Shyam has 23.5%. Under the new deal, SSTL will issue around 663m shares, or about 20% of the company, to the Russian Federal Property Agency for about $600m. It would also issue up to 229m shares to its Indian stakeholders. The deal will reduce Sistema's holding to about 54%.