Exclusive: Telenor prepares legal action to derail Wind deal

OSLO Fri Jan 28, 2011 11:31am EST

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OSLO (Reuters) - Telenor is preparing for possible legal action to block Vimpelcom's $6 billion bid to expand its telecoms empire outside Russia now that an attempt to build shareholder opposition looks doomed.

Reuters talked to five independent Vimpelcom shareholders. Their responses indicated a potential split that would leave the Norwegian company short of the support it needs at a vote due on March 17.

Telenor, with 36 percent of Vimpelcom, needs backing from more than 70 percent of independent shareholders to be certain it can block the self-styled Russian telecoms champion's Wind Telecom takeover deal.

Aside from the shareholder views, sources familiar with the situation and analysts expect the vote to go the way of the Russian company and its top shareholder, a company controlled by Russian billionaire Mikhail Fridman.

"We are evaluating our legal options," spokesman Dag Melgaard told Reuters, adding no decision has been taken on how best to fight what Telenor sees as "dirty tricks" by the deal's proponents.

A takeover of Wind is backed by Vimpelcom management, the Russian government, and Fridman's Altimo group.

The deal with Egyptian tycoon Naguib Sawiris would give Vimpelcom control of mobile group Orascom and Wind Italy and make it one of world's largest mobile operators. Sawiris gets a 30.6 percent Vimpelcom stake in return.

But it comes with risks, including lack of clarity over Sawiris's prized Algerian unit, and it threatens to reignite a long-running conflict between Telenor and Altimo.

"It seems it is all over for Telenor in terms of (blocking the bid at) the general meeting," said Arild Nysaether, an analyst at broker Fondsfinans.

"They need support from so many (owners) that it will be a very difficult task, and Altimo has a track record of mobilizing shareholder support."

Telenor has 36 percent of Vimpelcom's voting stock while Altimo owns 44.7 percent. To be certain of rejecting the bid for Wind, Telenor must be backed by 72 percent of the remaining shareholders, who jointly own 19.3 percent of votes.

"From what we are hearing, many Vimpelcom investors express a negative attitude to the Sawiris deal," said Telenor's Melgaard. As it weighs litigation, he said, Telenor will contact Vimpelcom shareholders to urge them to vote down the proposal.

But Kaha Kiknavelidze, managing partner of London emerging markets fund manager Rioni Capital, said his fund was in favor.

"The deal allows the company to expand outside of Russia at a time when asset prices are still depressed," he said. "It also allows Vimpelcom to leverage up and take advantage of the environment of very low borrowing costs."

Telenor said it saw "dirty tricks" in Vimpelcom and Altimo tactics to circumvent a shareholders agreement that would otherwise allow Telenor to take part in the share issue to Sawiris -- an issuance that will dilute its influence.

If the deal is approved, Sawiris will receive 30.6 percent of Vimpelcom voting stock and reduce Telenor's holding to 25 percent, Altimo's to 31, and all others to a joint 13.4 percent.

LOOPHOLE

Analysts said Telenor may focus potential legal action on Vimpelcom's treatment of Wind Telenor as a "related party," after entities controlled by Gleb Fetisov, an indirect minority shareholder of Altimo, acquired 0.7 percent in Orascom.

Vimpelcom said this changed the transaction into a "related party" M&A transaction from a "foreign party" one, thereby depriving Telenor of pre-emptive rights on the share issue.

The share issue would put Telenor dangerously close to falling below a 25-percent ownership threshold. That would dissolve a shareholders agreement with Altimo which gives Telenor three seats on the board and other rights.

"Vimpelcom investors have to realize that by allowing the Sawiris issue to go through, they are effectively putting themselves in a position where the shareholders agreement underpinning Vimpelcom's shareholder structure and corporate governance is a step away from being dissolved," Melgaard said.

"This will also curb the influence of financial investors."

According to the shareholders' agreement, all legal disputes between shareholders are to be settled in a London arbitration court according to New York law.

BATTLE FOR INDEPENDENTS

All three Vimpelcom board members representing "independent" minority shareholders voted in favor of the Sawiris deal earlier this month. The chairman said the deal would help the company gain bulk and that its terms were good.

Russian President Dmitry Medvedev was personally engaged in trying to secure the Sawiris deal, seen as a major expansion of a Russian company beyond the country's vast borders.

Telenor sees unacceptable risk in Sawiris's disputed operations in Algeria and indebted unit in Italy. Its reasoning has gained traction among some funds.

Fredrik Colliander, fund manager at HQ Fund which has a roughly $22 million Vimpelcom stake, said: "We are negative about the whole deal. It creates a lot of uncertainty."

"I cannot see how this agreement is beneficial for us. The risk increases, the Telenor and Altimo conflict increases and I have troubles seeing value in the assets," he said.

Undecided Moscow-based fund manager Elena Suslova at Wermuth Asset Management, with a $2 million Vimpelcom holding, said Altimo has a record of being more aggressive than Telenor in pushing its views but that Telenor could still prevail.

"If Telenor said to minor investors, 'Let us team up and vote against the deal', I think they would have a good chance at succeeding," she said.

(Additional reporting by John Bowker in Moscow and Sinead Cruise and Victoria Howley in London; Editing by Andrew Callus)

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