Telenor Voices Opposition to VimpelCom Ltd's Purchase of Weather

Telenor has formally announced that it does not support the planned US$6.6-billion acquisition of Weather Investments by VimpelCom Ltd. Back in October VimpelCom announced a deal that would see it gain 51.7% of Orascom Telecom Holding and 100% of Wind Italy, through Weather Investments (see Middle East and North Africa: 5 October 2010: VimpelCom to Buy Wind and Control of Orascom for US$6.6 Bil.). The planned deal would see Naguib Sawiris, the chairman of Weather Investments, receive US$1.8 billion in cash, two board seats in VimpelCom, and a 20% stake in the new structure of the VimpelCom Group, while VimpelCom would become the fifth-largest operator in the world, with 174 million subscribers. However, Telenor, which owns a 36% voting stake and 39.6% economic rights, has informed VimpelCom of its decision, stating that as a shareholder it does not believe that the transaction makes "strategic or financial sense" for VimpelCom shareholders. Telenor spokesman Dag Melgaard is quoted by Dow Jones as saying that Telenor had made a complete assessment of the financial and strategic aspects of the deal and decided that it would not be in the interests of VimpelCom's owners, but he did not clarify Telenor's position any further.

Telenor has three seats on VimpelCom's board of nine, and would therefore be unable to block the Weather acquisition on its own. However, Melgaard has pointed out that if the VimpelCom board opts to support the purchase, the matter will have to be dealt with at a general meeting. Aside from Telenor, VimpelCom Ltd's other major shareholder is Russian holding Alfa, which holds 44.65% of voting rights and 39.19% in economic rights. The remainder of the operator is held by minority owners.

Outlook and Implications

• Cracks Appear Within Uneasy Truce: The formal objection from Telenor indicates that the newly formed VimpelCom Ltd is set to fail its first major test. The group was formed in a display of supposed bonhomie back in October 2009 through the merger of the previously warring parties of Telenor and Alfa. The proposed acquisition would see Weather's colourful chairman, Naguib Sawiris, added to the management structure, effectively diluting Telenor's influence within VimpelCom Ltd, the resultant shareholder restructuring leading to Telenor's economic rights diminishing to 31.7% and its voting shares to 29.3%. This is likely to be one of the principal reasons for Telenor's objection, although the Nordic group has yet to specify as such. Telenor had fought tooth and nail for several years against Alfa, when both were shareholders of VimpelCom in its previous incarnation ("VimpelCom", rather than "VimpelCom Ltd" as it is now), and rather than exit the operator Telenor dug in, eventually settling for its stake in VimpelCom Ltd. The Weather deal threatens to undo some of this hard work, and testing times now lie ahead for all parties. Telenor looks set to fight again, while Alfa needs to placate Telenor whilst still completing the already complex transaction. Thus it seems that rifts are surfacing in what had always seemed an uneasy truce between Telenor and Alfa.
• Telenor's History of Caution: Alfa is unlikely to be wholly surprised by the objection from Telenor. Although the Nordic group had cautiously welcomed the move initially, its reactions tended to be less than entirely whole-hearted, for example warning of regulatory difficulties in Bangladesh and Pakistan, and later indicating that it believed VimpelCom ought to pay greater attention to its Russian market subscriber share (see Norway: 14 October 2010: Shareholder Telenor Calls for VimpelCom to Increase Subscriber Market Share). Such behaviour hinted that it was more conservative in its outlook than its fellow shareholders, while Alfa appeared to be lured by the prospect of growth in the emerging African and Asian markets. Telenor's conservatism has now materialised as a significant potential obstacle to the deal.
• Weather Acquisition Facing Numerous Difficulties: Having initially been heralded with great fanfare two months ago, Alfa's planned acquisition of Weather seems to be meeting fresh difficulties with each passing week. The plans have been mired in problems in Algeria, where the government is reluctant to relinquish control of mobile asset Djezzy, Orascom's largest revenue generator (see Algeria: 9 December 2010: VimpelCom Open to Co-Owning Djezzy with Algerian Government). This problem has forced VimpelCom to push back the likely completion date for the deal to the first half of 2011, having previously suggested that it would be completed in 2010. Alfa is now likely to attempt to win over Telenor by proposing amended shareholder and boardroom structures. Although the problem is by no means insurmountable, it suggests that there is plenty of distance left to run before the acquisition of Weather's assets is completed.