Vimpelcom board backs Egypt deal over Telenor's wishes
A deal to create one of the world's largest mobile phone carriers moved a step closer Monday when Russia's Vimpelcom ignored its Norwegian shareholders to set up a merger with Egyptian tycoon Naguib Sawiris.
The revised $6.5 billion (4.9 billion euro) accord was denounced as grossly unfair by Norway's Telenor, which holds nearly 40 percent of the company, and opened up up a bitter board battle that promises to rage while the deal clears its final hurdles in the coming six months.
The agreement -- which must still be approved by Russian regulators and Vimpelcom shareholders -- would create the world's sixth-largest mobile phone provider by number of subscribers.
It would also mark the Russian telecom industry's global emergence and establish a company that has roots in some of the world's fasted-growing mobile phone markets.
"We believe that the transaction addresses all the strategic needs of Vimpelcom and delivers good value," Vimpelcom chief executive office Alexander Izosimov told an investor conference call.
"The company will operate in 90 countries and have a subscriber base of over 170 million," he added.
Vimpelcom's six-to-three supervisory board vote allowed the number two Russian mobile carrier to acquire 51.7 percent of Egypt's Orascom Telecom and 100 percent of Italy's Wind.
But the acquisition also requires Vimpelcom to issue new stock and assume Egyptian debt obligations that the Norwegian carrier argues are harmful to both minority shareholders and the company's image abroad.
The deal envisions Vimpelcom issuing 325.6 million new common shares and 305 million convertible shares and also paying Sawiris $1.495 billion (1.125 billion euros) in cash.
The cash payment is smaller than the $1.8 billion package initially approved by the board last month.
The end result would be to significantly dilute Telenor's stake in Vimpelcom, something which it argues will scare future investors in the predominantly Russian firm.
Izosimov said the Egyptian shareholders' stake in Vimpelcom would be increased from 18.5 percent to 30.6 percent in exchange for Sawiris not receiving a seat on the new board.
"Existing Vimpelcom shareholders face considerable additional dilution if this acquisition is completed on the terms approved by the board," Telenor spokesman Dag Melgaard said in a statement.
"As a result of this transaction, Vimpelcom's minority shareholders' existing 18.6 percent (holding) will be diluted to 12.9 percent," the Norwegian firm's spokesman said.
Melgaard added that this negatively impacts Vimpelcom's potential attractiveness to investors and urged other minority shareholders to vote against the agreement at a general meeting scheduled for March 17.
Vimpelcom conceded that it was likely to face more boardroom drama as the deal approaches a shareholders' vote.
But it argued that Telenor was focused on the smaller picture while discounting that the deal would help the company assert itself on the global market.
"While we acknowledge Telenor's divergent view, we believe that the majority of our shareholders recognise the strategic and financial merits of this transaction," supervisory board chairman Jo Lunder said in a statement.
"In the end, as it should be with a public company, it will be the special general meeting of shareholders that will make the final determination," Lunder added.
© 2011 AFP