Shareholders Approve VimpelCom's USD6-Bil. Acquisition of Wind

The USD6.5-billion acquisition of Wind Telecom (formerly known as Weather Investments) by VimpelCom Ltd looks set to progress after shareholders of the Russian group approved the move at a Special General Meeting. Shareholders representing 93.1% of VimpelCom’s voting shares participated, of which 53.3% approved the deal, even though 60.2% of minority shareholders voted against it.

VimpelCom has also announced that it has received key regulatory approvals for the deal from regulatory authorities in Italy, Ukraine and Pakistan. This means that a potential obstacle has been removed, with Pakistani regulatory approval in particular earlier considered to present a potential difficulty. VimpelCom now envisages completion of the deal before the end of the first half of 2011.

The deal will see VimpelCom become the fifth-largest mobile operator in the world by subscriber numbers with over 173 million subscribers. By buying the telecoms assets of Wind chairman Naguib Sawiris, VimpelCom gains 100% of Wind Italy plus 51.7% of Egyptian group Orascom, which owns assets in Algeria, Bangladesh, Canada, Egypt, North Korea and Pakistan. Wind will receive USD1.5 billion plus a 20% stake in VimpelCom, worth around USD5 billion.

The deal will also see Telenor’s 36.06% voting stake in VimpelCom reduced to 25.0% as Wind gains a 30.0% voting stake. Altimo’s voting stake will be reduced from 44.65% to 31.6% and minority shareholders’ stakes will be reduced from the current 19.32% to 13.4%. In terms of economic ownership, Telenor’s 39.58% stake will be reduced to 31.7%, Altimo’s 39.19% will be reduced to 31.4%, the minority shareholders’ 21.23% will be reduced to 17.0%, and Wind will gain around 20%.

Having vehemently opposed the acquisition of Wind Telecom, Telenor has, in the light of the shareholder vote, pledged its “continued commitment to the future prosperity of VimpelCom”. It has also indicated that it will continue to pursue the arbitration proceedings launched last month, aimed at securing the pre-emptive rights in VimpelCom that it lost during the transaction.

Outlook and Implications

• Fresh Opportunities for VimpelCom: VimpelCom and key shareholder Altimo have achieved the outcome they sought, and VimpelCom's chief executive has been understandably buoyant, pointing out that the deal will provide a diversified revenue base, a substantially larger scale of operations and potential synergies of USD2.5 billion on a net present value basis. As well as the existing, enlarged customer base, it creates scope for further subscriber growth, with penetration in Bangladesh, Pakistan, Algerian, Egypt and Canada still less than 100%. There is also the potential for revenue generation, particularly as global momentum grows for mobile internet services. Moreover, with Orascom units leading in the Algerian, Pakistani, Tunisian and Egyptian markets, and ranking second in Bangladesh by subscriber shares, VimpelCom enters these markets already well-established, giving it an opportunity to raise awareness of its brand in such regions as Asia and the Middle East, thereby confirming it as a global player. However, it remains to be seen whether VimpelCom will gain control of Algerian mobile asset Djezzy, given the opposition of the Algerian government to such a move (see Algeria: 21 December 2010: Algerian Government to Announce Offer Price for Djezzy in Mid-2011).

• Telenor to Maintain Fight for Pre-Emptive Rights: Meanwhile, having fought long and hard to prevent the deal, Telenor has reacted with good grace to the outcome of the shareholder vote. The Nordic group has been engaged in several long-standing and intense legal battles with Alfa over the direction of VimpelCom, but has always resisted any temptation to sell up and walk away, so its decision to pledge its continued support to VimpelCom, despite its disappointment, is not entirely surprising. Telenor remains adamant that its pre-emptive rights should be reinstated and has already indicated that it will fight the necessary legal battles to ensure this as victory here would allow it to limit dilution of its stake and block the sale of new shares to Wind (see Norway: 31 January 2011: Telenor Launches Legal Action in Bid to Prevent VimpelCom's Purchase of Wind).

• New Deal Creates Potential Problems: While the immediate direction of VimpelCom is now clarified, the manner in which the decision has been made, with both minority shareholders and Telenor alike opposing the deal, suggests that further disagreements may well occur as the operator moves forward. To the often-combustible shareholder combination of Alfa and Telenor will be added Wind, while minority shareholders have cause for concern as their shares will be diluted. As well as this, the group will now take ownership and need to determine the strategy of a disparate group of new assets across various different regions, as well as taking on board substantial debt from Orascom. While exciting times for VimpelCom, the shareholder ruling and acquisition of Wind is therefore also likely to create a host of new and potentially difficult issues, which will need to be thrashed out by the leading shareholders.