IHS Global Insight Perspective | |
Significance | Having been agreed in October 2009, the tie-up between shareholders Alfa and Telenor of their stakes in VimpelCom and Kyivstar has now been inked. The deal brings an end to five years of legal conflict between the key shareholders. |
Implications | A potential complication has already arisen, with Ukraine's anti-trust body now claiming to have withdrawn its earlier approval of the deal; the deal does not massively skew the existing dynamics in the Ukrainian mobile market, however, so any problem should not be insurmountable. |
Outlook | The new deal does not open up new avenues of organic subscriber growth. It does, however, give VimpelCom Ltd. a platform for mobile internet growth in Ukraine. |
The merger of Commonwealth of Independent States (CIS) integrated operator VimpelCom and Ukrainian mobile operator Kyivstar into new group VimpelCom Ltd. has now been completed. At the end of 2009 VimpelCom had 64.6 million subscribers across its markets of operation, which include Russia, Ukraine, Kazakhstan, Armenia, Uzbekistan, Tajikistan, Georgia, Cambodia, and Vietnam. Kyivstar had 22.0 million subscribers at end-2009, making it the largest mobile operator in Ukraine.
Telenor will hold 38.84% economic ownership of VimpelCom Ltd., with Altimo holding 38.46% and 22.70% being in free float; while in terms of voting ownership Telenor will hold 35.42% and Altimo 43.89%, with 20.69% in free float. Previously, Telenor had held 29.9% of VimpelCom and 56.5% of Ukrainian mobile operator Kyivstar, while Altimo had held 44.0% of VimpelCom and 43.5% of Kyivstar.
The new group will be incorporated in Bermuda, based in the Netherlands and governed by U.S. law. VimpelCom Ltd shares will begin trading on the New York Stock Exchange today under the VIP ticker previously used by VimpelCom.
The deal had originally been suggested in October 2009, bringing to an end five years of legal conflict between the key shareholders, which had seen a US$1.7-billion lawsuit filed against Telenor by a minor VimpelCom shareholder, and the consequent seizure of Telenor's Russian assets by bailiffs, with the threat that the assets would be liquidised (see Russia: 5 October 2009: Telenor and Alfa End Five-Year Battle with Merger of Russia-Ukraine Assets). However, the lawsuit was this week dropped, following the approval earlier of 97.87% of VimpelCom shareholders of the merger, above the required threshold of 95% (see Russia: 20 April 2010: Russian Bailiffs Release Telenor's 26.6% Stake in VimpelCom). The deal had also received the approval of the Russian and Ukrainian regulatory bodies.
Outlook and Implications
Contretemps Immediately Arises: Barely has the ink dried on the deal than a potential complication has already arisen, with Ukraine's anti-trust body now claiming to have withdrawn its earlier approval of the deal, on the grounds that "new circumstances have been revealed", according to spokesman Bogdan Yakimyuk in Reuters. Although the specifics of these circumstances have not been disclosed, the regulator has hinted that a review of the decision could take several months. Altimo and Telenor have both indicated that they are unconcerned by this latest development, pointing out that the deal has proceeded in accordance with the previous approval of the regulator, but behind closed doors they may be more wary. However, IHS Global Insight considers that it is unlikely that any serious hitch could arise. The merger would mean that VimpelCom's previous presence in Ukraine, through minor GSM operator Ukrainian RadioSystems (URS), would add a further 2.0 million subscribers to Kyivstar's 22 million, further increasing the dominance of the new VimpelCom Ltd in the Ukrainian market of 54.4 million. This may require VimpelCom Ltd to relinquish some of its bandwidth, but the combined subscriber base does not massively skew the dynamics of the market, so such a problem would be far from insurmountable.
Telenor Puts Russian Troubles Behind: Although Telenor and Alfa are now partners and suitably optimistic noises have therefore been made regarding future prospects, this was not always the case, for the relationship between the pair had at times been extremely strained. The Nordic group was placed under considerable pressure to sell to Alfa its stake in VimpelCom, but refused to exit the large and lucrative Russian market. Telenor Chief Executive Jon Fredrik Baksaas has insisted that the decision to merge assets was not the result of pressure exerted by Alfa, but was instead made in a "balanced" manner. Telenor will certainly be relieved to have resolved the issue without having to exit a Russian market on the cusp of further growth through the emergence of mobile internet services, but worries may yet remain over the occasionally opaque nature of business in the country, of which it has had first-hand experience.
Mobile Internet Prospects for VimpelCom Ltd. in Ukraine: Although the newly formed VimpelCom Ltd has a subscriber base of almost 90 million, the merger has hardly opened up new avenues of organic subscriber growth in the CIS region, with mobile penetration in Ukraine now actually declining, down to 119.3% at end-2009, from 120.8% the previous year. Nevertheless, Ukraine has potential as a healthy revenue generator. The country has yet to experience the take-off of mobile internet, with the only 3G licence in the country having been awarded several years ago to fixed-line incumbent Ukrtelecom, which has failed to make a massive impact. The country's major operators continue to appeal for new 3G licence awards, and although such an issue is draped in uncertainty, VimpelCom has a better chance of success through its ownership of leading GSM player Kyivstar than it ever had with URS. The ownership of Kyivstar will also help to generate new synergies from international calls between Russia and Ukraine, as well as fresh roaming potential across the CIS.