VimpelCom Fri Board Meeting Seen Key To Future Direction

MOSCOW (Dow Jones)--The board of OAO Vimpel Communications (VIP), Russia's second-largest mobile phone network operator, meets Friday to decide on a strategic move that could ultimately decide the future of the company's ownership.

VimpelCom's core shareholders, local financial-industrial group Alfa Group (ALFAGP.YY) and Norwegian telecoms operator Telenor ASA (TELN), are at loggerheads over the company's proposed entry into Ukraine.

However, analysts suspect the dispute could be a prelude to one of the partners selling out of Vimpelcom, handing control to the other.

For years, Vimpelcom has built its success on the market savvy of Alfa, which owns 33% of VimpelCom's voting shares, and the technical and strategic expertise of Telenor, which holds 27%.

The two shareholders' dispute centers on VimpelCom's possible acquisition of Ukrainskiye Radiosystemy, or Ukrainian Radiosystems.

Alfa wants VimpelCom to buy the medium-sized mobile operator, which would help to expand Alfa's own presence in the fast-growing Ukrainian market. It has filed a corresponding motion for the board's discussion Friday.

The move would create a major headache for Telenor which would then face Vimplecom as a direct competitor to Kyivstar, Ukraine's second-largest mobile operator. Telenor owns 56% of Kyivstar, while Alfa owns 44%.

Telenor has long stated that it either wants to control VimpelCom or exit the venture, in line with its corporate strategy. Telenor said Thursday it will approach Friday's meeting with "an open mind."

Alfa declined to comment.

Alexei Yakovitsky, an analyst with United Financial Group in Moscow, said Telenor's two board representatives are almost certain to reject the motion to buy Ukrainian Radiosystems at Friday's board meeting. Following a recent court ruling that blocked a suspected Alfa-sponsored attempt to get round the company's shareholder agreement, their votes alone will be enough to stop it.

However, Yakovitsky said Ukrainian Radiosystems is diverting attention away from the real reason for the dispute - the tussle for control of VimpelCom.

"The common view is that Alfa wants to consolidate Kyivstar into VimpelCom ,but that Telenor would want control over the resulting entity," said Yakovitsky. "In order to achieve this Telenor would need to own 100% of Kyivstar."

Yevgeny Golossnoy of Troika Dialog also believes control of VimpelCom is behind the dispute. If Kyivstar were consolidated as things stand, Telenor would lose control of Kyivstar without gaining control of VimpelCom, he said.

Whatever happens, the worst outcome would be for the current stalemate to continue, said Konstantin Chernyshev, an analyst at UralSib Bank in Moscow.

"The conflict has already become international," he added, citing reports in the Russian press that Alfa had begun obstructing the work of the board at Kyivstar.

Alfa declined to confirm those reports, but they are strikingly similar to delaying tactics used by Alfa at OAO Megafon (MGF.YY), Russia's third-largest mobile network operator, last year.

Yakovitsky said the worst outcome for VimpelCom from the shareholder dispute would be Telenor's exit from the company because if would rob company of technical expertise. Telenor's strong connections with the Norwegian government have also been useful during Vimpelcom's prolonged conflicts with the Russian regulatory authorities.

However, he considers it more likely that Alfa would sell its stake, albeit "at the right price".

The current market value of Alfa's stake in VimpelCom is about $1.7 billion. Golossnoy believes that Telenor would have to pay $2 billion to buy out Alfa. Kyivstar, by comparison, is worth about $2 billion in total, says Golossnoy.

Company Web site: http://www.vimpelcom.com

-By Andrew Langley, Dow Jones Newswires; +7 095 974 80 55; andrew.langley@dowjones.com

(END) Dow Jones Newswires"

Posted to the site on 21st April 2005