VimpelCom Agrees $6.5 Billion Deal, Ignoring Telenor

VimpelCom Ltd.’s board approved the purchase of Egyptian billionaire Naguib Sawiris’s phone assets for a lowered total of $6.5 billion, overriding shareholder Telenor ASA’s opposition to the deal.

VimpelCom, Russia’s second-biggest mobile-phone operator, sought a new agreement after Telenor rejected an earlier $6.8 billion proposal, saying the transaction wouldn’t help the business. VimpelCom is seeking to take over Sawiris’s Italian mobile operator Wind Telecomunicazioni SpA and his 51.7 percent stake in Egypt’s Orascom Telecom Holding SAE to create the world’s sixth-largest phone company.

Telenor said the new proposal “makes even less sense,” and that it will fight it at the company’s shareholders’ meeting, suggesting the deal may be headed for trouble. Telenor’s three directors on the board voted against the deal, while the remaining six, including Alfa Group-held Altimo’s nominees, voted in favor, VimpelCom said in a statement.

“It seems they are heading back into conflict,” said Arild Nysaether, an Oslo-based analyst at Fondsfinans ASA. “VimpelCom pushed on with the deal at terms that Telenor would probably refuse and VimpelCom probably knew they would.”

Under the new deal, the shareholders of Wind Telecom SpA, the holding company for Sawiris’s phone assets, will get 20 percent of new VimpelCom shares valued at $5 billion at current prices and about $1.5 billion in cash, Amsterdam-based VimpelCom said. Wind Telecom will get 31 percent of the voting rights in the enlarged group from 19 percent under the earlier proposal.

Telenor Opposition

Telenor traded as much as 3.1 percent lower at 89.90 kroner ($15.4) in Oslo. Orascom Telecom rose as much as 3.6 percent to 4.57 Egyptian pounds, or 79 U.S. cents, in Cairo.

“We definitely think it would have been possible to find something over time that would be more attractive than this,” Telenor spokesman Dag Melgaard said in an interview. “As the outcome is giving Wind or Sawiris disproportionately large voting rights for little money, we think it’s a bad deal.”

The revised deal cuts the cash portion to about $1.5 billion from $1.8 billion.

“We did not support the original proposal because it did not make strategic or financial sense,” Melgaard said. “The revised proposal makes even less sense.”

Sawiris had sought to obtain seats on the VimpelCom board and said today he had agreed to “sacrifice” board representation to try and persuade Telenor to support the deal. The billionaire said he will seek further discussions with shareholders on governance rights at the enlarged group.

Algerian Question

“While we acknowledge Telenor’s divergent view, we believe the majority of our shareholders recognize the strategic and financial merits of this transaction,” VimpelCom Chairman Jo Lunder said in the company’s statement.

VimpelCom wants to retain Orascom’s Algerian unit and “reset the relationship” with the Algerian government Chief Executive Officer Alexander Izosimov said today in a telephone interview.

VimpelCom and Wind last year delayed the signing of a shareholder agreement as Orascom tried to resolve a dispute with the Algerian government over its local unit, Djezzy.

The Algerian government, which wants to buy Djezzy, ordered Orascom to pay more than $800 million in back taxes and banned it from transferring money abroad, penalties that Orascom has contested.

The Egyptian company has said it could be in international arbitration by the second quarter of this year unless it can resolve the dispute.

Uneasy Partnership

VimpelCom said today it agreed to enter a value-sharing agreement with Orascom to cover any potential losses or gains from the Algerian unit portion of the deal. Wind will cover “the financial bulk” of any settlement, Izosimov said.

Photographer: Shawn Baldwin/Bloomberg

Naguib Sawiris, chairman of Orascom Telecom Holding SAE. Close

Naguib Sawiris, chairman of Orascom Telecom Holding SAE.

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Photographer: Shawn Baldwin/Bloomberg

Naguib Sawiris, chairman of Orascom Telecom Holding SAE.

Once the deal is completed, Telenor’s economic rights in VimpelCom will fall to about 32 percent from 40 percent, while voting rights will drop to 25 percent from 36 percent. The transaction will be completed in the second quarter, after a vote by shareholders at a meeting on March 17, VimpelCom said.

“We can vote no to the issuance of new shares and hope that we convince enough minority shareholders to vote with us to stop the issuance and probably also the transaction,” Telenor’s Melgaard said. Approval at the shareholder meeting requires a majority, he said, adding that it’s too early to say what will happen if Telenor loses.

‘Not Far’

The Russian company is “not far off” from gaining enough votes from minority shareholders, Izosimov said. The company needs to secure one third of minority votes to push through the deal, he said.

VimpelCom, listed on the New York Stock Exchange, was formed from the consolidation of Russian billionaire Mikhail Fridman’s Alfa Group and Telenor’s holdings in Russian and Ukrainian mobile-phone operators.

The main shareholders of VimpelCom have had a tumultuous relationship over the years. The merger of Telenor and Altimo shares in VimpelCom and ZAT Kyivstar GSM was agreed to in October 2009, ending years of courtroom disputes over the control of mobile companies in Russia and Ukraine.

The agreement resulted in a retreat from lawsuits that had handed the Norwegian company a fine of $1.7 billion in a Siberian court.

To contact the reporter on this story: Jonathan Browning in London jbrowning9@bloomberg.net. To contact the editor responsible for this story: Vidya Root at vroot@bloomberg.net.

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