MOSCOW, Mar 27 (Prime-Tass) -- The long-lasting conflict between Norway?s Telenor and Russia's Alfa Group over VimpelCom, which they own together, is unlikely to see a quick resolution following the exchange of statements issued last Friday, analysts said.
On March 20 Telenor proposed a way to "divorce" with Alfa Group offering to sell its 56.5% in Kyivstar in which Alfa has 43.5% for $5 billion in cash to VimpelCom but Alfa does not seem to be interested.
Telenor made its proposal in response to an earlier one made by VimpelCom's CEO Alexander Izosimov, who offered February 8 to pay $5 billion in cash and equity for Kyivstar.
Alfa holds 32.9% in VimpelCom and Telenor has 26.6%. The divorce mechanism would assumes that when Alfa or Telenor makes a bid to buy the other out of VimpelCom, the other shareholder can either accept the bid or counter-bid the initial proposal. The process would be irreversible and end with only one of the major shareholders accepting the bid.
While initially Alfa indicated its interest in the proposal, on Friday Alexei Reznikovich, chief executive of Altimo, the telecommunications unit of Alfa Group, said that his company does not plan to either sell its stake in VimpelCom to Telenor or buy Telenor's stake.
"We do not plan to spend billions of dollars to buy Telenor's stake in VimpelCom. Neither do we want to sell our stake, as we believe in the potential of the company," he said during a conference call with analysts.
He said that Altimo expects the Russian and the Ukrainian markets to grow for "at least another couple of years." But even after that Alfa, a finacial investor, may decide not to exit the lucrative telecom sector, as "there may be some new technology, some value-added services that will help maximize the value of telecommunications operators." Reznikovich made a counter-proposal to Telenor offering to consider a cash and equity deal, where about $3 billion would be in cash and the rest in newly issued VimpelCom shares.
Otherwise, he said, it would be difficult for VimpelCom, "a company with $10 billion capitalization to raise $5 billion in cash without jeopardizing its financial situation."
He added that the transaction may dilute shareholdings of Telenor and Alfa in VimpelCom and the final structure of the ownership will depend on the structure of the deal.
Reznikovich also said that Altimo did not agree with the divorce mechanism offered by Telenor. "We do not link the VimpelCom deal to buy Kyivstar with resolving a conflict between us and Telenor," Reznikovich said.
He said that he sees the real reason for the conflict Alfa and Telenor taking each other to court and Telenor saying it may try to replace VimpelCom's management. According to Alfa, Telenor didn't want to allow VimpelCom to enter the Ukrainian market in a bid to protect its majority shareholding in Kyivstar. "Once VimpelCom buys Kyivstar, the conflict (between Alfa and Telenor) will be exhausted," Reznikovich said. "I see no reason why we can't continue being co-owners with Telenor in VimpelCom. There is no urgency or need for separation agreement or any other drastic measures," he said.
Altimo and Telenor are in talks to resolve their differences and some resolution is expected by the beginning of May, Reznikovich said.
Telenor?s reaction to Reznikovich statements was harsh indicating that the two companies are still far apart on key issues and the conflict resolution may still be far away.
"Telenor emphatically disagrees with Reznikovich's implication that there are no ongoing serious issues between the shareholders. Alfa Group's and Altimo's unacceptable attacks on Telenor over the past 18 months continue today. Altimo continues to disregard the charters and shareholders agreements of VimpelCom and Kyivstar to the detriment of both Telenor and VimpelCom's minority shareholders," Jan Edvard Thygesen, Telenor's Executive Vice President and Head of Eastern/Central Europe, said only two hours after Reznikovich finished his talk.
"It is precisely Alfa Group's unwillingness to respect agreements that makes a market-based separation mechanism an absolute prerequisite to any transaction between VimpelCom and Kyivstar. The market-based separation mechanism is intended to protect the interests of law-abiding shareholders and to ensure that minority shareholders receive full value in the event the mechanism is triggered," he added.
Earlier on that day Kjell Morten Johnsen, chairman of Telenor Russia, told Dow Jones Newswires that if Telenor or Alfa Group end up buying out each other's stake in VimpelCom minority shareholders will be offered a fair price for their shares.
Johnsen told that when one shareholder buys out the other, it is usually at some premium to the market price. "That will also positively influence the price offered to the minority shareholders," he said.
Telenor and Alfa Group were engaged in the conflict since VimpelCom purchased Ukrainian Radiosystems (URS), small mobile operator in late 2005, in order to enter the Ukrainian market. The conflict led to several lawsuits filed by Telenor against VimpelCom and the failure to approve VimpelCom's budget for 2006.
?While we estimate that, at $5 billion, Kyivstar is valued at approximately 30% above its true value, Telenor?s proposal is nevertheless positive for minorities, as the amendments to Russian Joint Stock Company Law that will come into force on 1 July 2006 will require buyers of a 30%+ stake in a company to make an offer to minority shareholders at the highest price,? Alexander Kazbegi with Renaissance Capital, said.
?We like Telenor?s proposal as it introduces market mechanisms into the process. We are not so sure that the proposal will be accepted by Alfa given the latter?s ambitions regarding their Altimo venture, which may become less interesting to any prospective buyer without its key asset VimpelCom/Kyivstar. At the same time, the proposal offers both Alfa and Telenor an effective way to resolve the conflict and enables them to fix some profits made from their early investments into Kyivstar and VimpelCom,? he added.
Though the $5 billion may seem high, VimpelCom, if wanted, would not face difficulties to attract this money, analysts said.
"We believe that VimpelCom could finance the acquisition with a combination of debt and new equity (to be placed in the public market)," Deutsche UFG said.
VimpelCom may even attract funds only through taking loans, as its current debt level us relatively low. "The addition of $5 billion of debt to VimpelCom?s balance sheet would push the Debt to EBITDA ratio to circa 2.5x ? an acceptable level overall," Kazbegi said.
Telenor proposed making the Kyivstar acquisition part of a broader deal aimed at resolving the conflict over VimpelCom. Telenor proposed that the acquisition takes place if all the parties involved agree to a mechanism that "would permit the party placing the highest value on VimpelCom to make an offer to purchase all of the other party's shares in VimpelCom, and (that) would obligate the other party to sell all its shares in VimpelCom to the offering party."
"Such an arrangement could result in Telenor or Alfa holding a controlling stake in VimpelCom," Telenor said.
In an immediate response to Telenor's proposal, Altimo said that it does not support the conditions whereby one of the key shareholders would leave VimpelCom. "We think it is incorrect of Telenor to put forward conditions for the deal, such as Telenor and Altimo agreeing on a mechanism to end its partnership," Altimo said.
"Altimo remains committed to the current mechanism of corporate governance in VimpelCom, which is ideal for this company, and plans to continue acting as a financial and strategic investor in telecommunications in emerging markets," Altimo said.
Telenor said it wants to get a formal reply from Alfa before March 31. "We hope that Alfa will take time to study the proposal more carefully. Both analysts and a representative of the Russian government have called this a constructive and logical proposal," Thygesen said after Altimo indicated its disagreement with the proposal conditions.
"Our understanding is that Alfa would only consider an offer for its stake in the operator if it was at a premium to the current $2.9 billion market price," Aton Capital said. This would be reasonable, in our view, as Telenor would be taking control of the Russian operator. Moreover, our end-2006 valuation for VimpelCom implies 45% upside to the current market price, justifying a significant premium," Aton Capital added.
Analysts believe that if such an auction for control over VimpelCom takes place, Telenor is likely to be the winner and they see Telenor's becoming controlling shareholder as a good way out for VimpelCom from the shareholders' conflict.
"We believe that a strategic telecom investor such as Telenor can justify paying a higher premium for a telecom asset than a financial investor like Alfa," Deutsche UFG said. "We hence see Telenor as the more likely winner of the future bidding. Telenor?s arrival as a strategic shareholder in VimpelCom is likely to be taken positively by the investor community and should benefit the company?s prospects in the long-run," Deutsche UFG said.
Telenor included the receipt of approval from the Russian Federal Antimonopoly Service to purchase up to 100% in VimpelCom as another precondition for the deal to go through. Telenor said that it has already filed an application with the Federal Antimonopoly Service (FAS) seeking to get approval to increase its stake in VimpelCom to up to 100%.
Russia's IT and Telecommunications Minister, Leonid Reiman, said last Thursday he supports Telenor proposal to Alfa, Dow Jones Newswires reported. "It is not the worst suggestion for Telenor to buy 100% of VimpelCom," Reiman said at a meeting with foreign journalists. "The earlier this conflict is resolved, the better for the whole industry," he added.
Kazbegi of Renaissance said that he sees ?the chances of the deal going through as only 50/50.? Other analysts seem to agree.
"We believe that Telenor?s proposal might be a starting point for a new round of discussion between Telenor and Altimo about their shareholding in VimpelCom, which will likely end the conflict in one or another way ? not necessarily on Telenor terms, but on terms acceptable to both sides," UralSib said in a research note Monday.
End"
Posted to the site on 27th March 2006
Posted to: www.cellular-news.com/story/16690.php