Telenor throws in the towel at VimpelCom

By bne IntelliNews October 5, 2015

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Norwegian telecom Telenor will sell its  33% stake in Russian mobile telco VimpelCom, leaving Russian billionaire Mikhail Friedman in undisputed control of the company, which has 200m subscribers in 14 countries.

"The VimpelCom asset, where Telenor holds a minority position without the possibility to fully control the company, has been challenging," Telenor chairman Svein Aaser said in a statement on October 5. The company said it expects the sale process to "take some time".

The disposal will mark the end of the battle over control of VimpelCom between Telenor and Fridman's Alfa Group, which seized the advantage in 2012 when it raised its economic stake to 56% and its voting share to 48%. Telenor has a 33% economic stake but 43% of the voting rights.

Telenor is the second Nordic telecom to sell out of the former Soviet Union after TeliaSonera of Sweden announced its intention to divest its Central Asian assets last month. Like TeliaSonera, Telenor has been embarrassed by corruption scandals over telecom licences in the region, in its case via its shareholding in VimpelCom, which as well as Russia and Ukraine, operates across Central Asia in Kazakhstan, Kyrgyzstan, Uzbekistan, Tajikistan, Armenia and Georgia.

Vimpelcom's dealings in Uzbekistan are under investigation in the US and the Netherlands. In December 2014 Telenor CEO Jon Fredrik Baksaas left the board of VimpelCom after a probe into alleged bribery in Uzbekistan. 

The divestment will force Telenor to make a non-cash writedown of NKr7.5bn, though the company said that since buying 33% in VimpelCom in 1999, it had invested about NOK15bn, while receiving NOK20bn ($2.4bn) in dividends.

VimpelCom shares have dropped some 70% since the start of 2014 amid Russia's economic slump and ruble devaluation, closing at $4.05 in New York on October 2, valuing Telenor's stake at around $2.4bn. Sberbank estimates that the market value of the VimpelCom share package currently represents approximately 8% of Telenor's market capitalisation.

In 2012, Baksaas told the Financial Times that Telenor was ready to give up its stake in VimpelCom for an estimated $6.4bn. Baksaas told the FT that the company has to "be pragmatic and realistic about the high appetite of other [shareholders]", should Friedman's Altimo investment company, that then managed Alfa Group's telecom assets,  propose to buy out VimpelCom's Norwegian stake.

Sberbank CIB commented on October 5 that Telenor's announcement came quite unexpectedly. Although the analysts believe that Telenor will manage to find strategic buyer for its VimpelCom stake, they still see a potential share overhang risk given the challenging market environment. 

Potential buyers may also be deterred by Fridman's dominant position, though L1 Technologies (a holding set up by Alfa Group which owns 48% of VimpelCom) reportedly has no preemptive right to buy Telenor's shares. "There is no longer a shareholders agreement in place at VimpelCom, nor are there any pre-emption rights under VimpelCom's bye-laws," Severin Roald, Telenor SVP and Head of Group Communications, told Interfax on October 5.

While L1 declined to comment, its head Alexei Reznikovich told Interfax in June last year that the company was not interested in buying out Telenor. "We consider we have a big enough stake in VimpelCom as it is and it would not be right to put all our eggs in one basket," he said at the time.

Decade of enmity

Telenor and Altimo have been locked in one of the longest conflicts in Russian corporate history for control of VimpelCom. The conflict escalated in 2011, when Telenor protested against Vimpelcom's deal with Egyptian holding Weather Investments. The deal included VimpelCom's acquisition of 51.7% in Orascom Telecom and 100% in Wind Italy for $1.8bn and a transfer of 18.5% of shares in the united holding to Weather Investments.

In one aspect of the conflict, the Moscow court of arbitration in April 2012 blocked Telenor's ability to influence Vimpelcom's board decisions after an appeal by the Federal Antimonopoly Service (FAS).

Fridman finally vanquished Telenor in August 2012 when Altimo acquired a $3.5bn minority share in VimpelCom, increasing its ownership stake to 48%.

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