VimpelCom shareholder conflict takes a step forward

By bne IntelliNews August 16, 2012

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Altimo announced on August 15 the acquisition of VimpelCom shares from both the market and Egyptian partner Weather Investments, bringing its total stake to 40.5%. The deal opens the possibility that the latest spat between the Russian telecoms investor and Norwegian peer Telenor - which has blocked dividend payments to shareholders - could be put to bed sooner than expected.

The telecom arm of oligarch Mikhail Fridman's Alfa holding acquired 305m common shares, or 14.8%, in Netherlands-based VimpelCom Ltd - the sole owner of Russian mobile operator VimpelCom - from Nagib Sawiris' Weather Investments for $3.6bn. The purchase pushes the stake held by Altimo to 40.5%, or slightly above Telenor's 39.5%.

The deal implies a price of $11.8 per share, suggesting a 26% premium to the market. However, the key point is that the deal opens a window for the resolution of the latest in a long list of value-destructive fights between the two main shareholders.

Illustrating Alfa's significant power in the Russian market - which has seen it trump Telenor several times over the past few years - Russia's anti-monopoly office FAS launched a case against the Norwegian company in April, claiming that an earlier deal between Telenor and Weather Investments, whereby Telenor increased its stake in VimpelCom to 39.5%, violates laws on strategic enterprises, and insists that Russian and foreign shareholders in VimpelCom should achieve parity. .

Altimo promptely asked Telenor to sell some of its stake in order satisfy the demand, but Telenor - which has been building its stake in order to allow it to fight its corner in the long-running dispute with Altimo over company strategy - refused. The Moscow Arbitration Court then ruled to block dividend payments by VimpelCom's Russian subsidiary to the parent company, effectively halting VimpelCom's Ltd. payouts to all shareholders, which has of course hit the stock's performance hard.

While analysts point out that the August 15 deal does not achieve the parity FAS is demanding, they suggest that it paves the way for a resolution, either by persuading FAS to relent on its terms, or by kicking off a new round of M&A activity in VimpelCom shares. Either way, analysts note that the news opens new opportunities for minorities.

"Technically, the recent Federal Antimonopoly Service (FAS) requirement to bring about ownership parity between Russian and foreign shareholders has not been satisfied," points out Renaissance Capital. "Altimo has 40.5% vs a 49% total for Telenor, Weather Investments and Ukrainian Bertofan Investments."

Analysts at UralSib suggest "That while the deal does not guarantee that the shareholder conflict will be fully settled ... it is quite likely that the case initiated by FAS will be dropped and the ban on dividend payments lifted. This will certainly support the stock (it already rose 9% yesterday, following the announcement)."

Meanwhile, Telenor has a put option for a 3.5% stake owned by Sawiris, and is reportedly very likely to use it. At the same time, Altimo plans to approach Telenor with another offer to buy some of its shares, Rennaisance Capital adds that "Altimo is likely to be a buyer of the 6% voting stake of Bertofan Investments - which the latter got from Altimo in December 2011 - although it may not be in a hurry to make this purchase in order to put pressure on Telenor to sell more of its stake. Together with the Bertofan Investments shares Altimo would have a 46.5% stake, vs 43% for Telenor and Weather INvestments, satisfying the FAS requirement even without a further sale by Telenor."

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