UPDATE 4-Alfa, Telenor make peace; plan $23 bln merger

* To merge Russian and Ukrainian operations

* New entity, Vimpelcom Ltd, to be New-York listed

* New entity may pay out 2009 dividend

* Telenor stock up 13.7 percent, Vimpelcom up 9 percent

* Deal seen positive for Russia investment climate

(Adds more Alfa, Telenor comments, Vimpelcom share price)

By Maria Kiselyova and Wojciech Moskwa

MOSCOW/OSLO, Oct 5 (Reuters) - Norwegian Telenor (TEL.OL) and Russian Alfa Group have agreed to merge their Russian and Ukrainian holdings into a $23 billion New-York listed telecom firm, ending one of Russia's longest corporate wars.

Telenor's stock surged 15 percent on the news the row had ended. The dispute was seen as a major threat to foreign investment in Russia and could have meant Telenor losing its stake in Russia's No.2 mobile operator in payment of a $1.7 billion fine.

The deal followed calls by Russian Prime Minister Vladimir Putin to attract more international investment, and a meeting between Putin and Telenor Chief Executive Jon Fredrik Baksaas last week.

The deal will see Vimpelcom (VIP.N), worth around $18.4 billion, merge with Ukraine-based, unlisted Kyivstar, which analysts said was valued at $5.2 billion.

Telenor shares were up 14.57 percent at 72.75 Norwegian crowns ($12.62) at 1524 GMT, while Vimpelcom jumped 9 percent at the market open in New York.

The half-decade-long battle between Telenor and its powerful partner, the oil-to-telecoms Moscow-based Alfa Group, led by billionaire Mikhail Fridman, has chilled Russia's investment climate.

Telenor had faced the potential selloff of its stake in Vimpelcom to pay the $1.7 billion fine from a Siberian court over the joint venture's expansion into Ukraine. The case was brought by Farimex, an obscure shareholder that Telenor had suspected was acting on behalf of Alfa, but which Alfa denied.

Investors had feared that Russian asset values would be destroyed if a Western investor, particularly one controlled by a European state as is the case with Telenor, was stripped of a prime asset by a Russian court. However, analysts had long predicted a corporate divorce between Alfa and Telenor, with Alfa getting Vimpelcom and Telenor acquiring Kyivstar.

"Financially this is a good deal for Telenor. One could have imagined that they were under pressure to accept a worse deal, said Martin Hoff of Arctic Securities in Oslo. "On the downside, this means that Telenor will never be able to consolidate Kyivstar earnings into its accounts."

GOOD NEWS FOR TELENOR, VIMPELCOM

Telenor said the two sides would suspend their legal battle and move ahead with the deal, which will create the biggest operator in emerging Europe, with 85 million clients, 2008 pro-forma sales of $12.6 billion and EBITDA of $6.3 billion.

The deal bears rough similarities to Alfa's peace deal with BP (BP.L), its partner in Russian oil venture TNK-BP, in which the British major agreed to a reduced management role, although its stake in the joint venture remained the same.

Telenor currently holds 30 percent in Vimpelcom, while Alfa has 44 percent of voting stock. Telenor is the majority owner of Kyivstar and had been reluctant to part with control of its key asset. Alfa is a minority shareholder in Kyivstar.

Alfa's telecoms arm Altimo said on Monday that Telenor would get 35.42 percent of voting shares in the new company, Vimpelcom Ltd, while Alfa would get 43.89 percent.

The free float will amount to 20.69 percent and the combined firm could be listed in New York in April 2010.

"It is good news for Vimpelcom because it gets 22 million clients at Kyivstar, a very efficient company, which even in crisis is cash-positive," said Konstantin Chernyshov from Moscow-based Uralsib brokerage.

The offered exchange of 3.40 Vimpelcom shares to 1 Kyivstar share is attractive for minority shareholders, UniCredit said, adding it saw value synergies for Vimpelcom.

Norwegian Industry Minister Sylvia Brustad also welcomed the deal.

"From the information I've received so far this is a good deal for Telenor's shareholders," Brustad said in a statement.

Minority shareholders in Vimpelcom would receive one depositary receipt in the new entity for each Vimpelcom depositary receipt currently held or be bought out at 0.05 kopeck per depositary receipt.

Altimo Chief Executive Alexei Reznikovich said Farimex was not part to the deal but dropping its lawsuit was one of conditions for the deal to close. Farimex declined to comment.

The agreement is laced with safety clauses -- signalling limited trust between the partners -- which are aimed at maintaining the new entity entirely under Western standards of governance and litigation, should it reappear.

Telenor's Russian head, Ole Bjorn Sjulstad, said the new firm would aim to pay at least 50 percent of Vimpelcom's Russian operations' and 50 percent of Kyivstar free cash flow in dividends, possibly on the 2009 results.

For a FACTBOX on new operator formed, click on [ID:nL541248]

For a FACTBOX on Telenor's legal wrangles with Alfa, click on [ID:nLA514488]

For a NEWSMAKER on Fridman, click on [ID:nLC967807]

For Jason Bush's column on the deal, click on [ID:nL5272148] ($1=5.765 Norwegian Crown) (Reporting by Maria Kiselyova, Gleb Bryanski, Anastaisa Teterevleva and Melissa Akin in Moscow and Wojciech Moskwa and Terje Solsvik in Oslo; editing by Hans Peters, Simon Jessop and Karen Foster)