(Corrects spelling of Barclays analyst to JP Davids from Davies)
* VTB said its deal is done, legally binding
* Fridman's A1 says sale to VTB undervalues Tele2 Russia
* Ready to offer $3.6-$4 bln for Tele2's Russian unit
* Running numbers on possible bid for Tele2 as a whole
* Tele2 and main shareholder stand by $3.5 bln VTB deal (Recasts with VTB comment, adds VTB comment throughout)
By Megan Davies and Simon Johnson
MOSCOW/STOCKHOLM, March 28 Russian state-controlled bank VTB said it had struck a legally-binding deal to buy Tele2's Russian division, after billionaire Mikhail Fridman's investment group A1 threatened to top VTB's $3.5 billion bid for the asset.
A1's challenge boosted Tele2 shares and raised the prospect of a rare Russian takeover tussle, pitting Fridman - flush with billions from the sale of oil firm TNK-BP - against the country's No.2 bank.
A1 had said it was prepared to make an all-cash bid of between $3.6 billion and $4 billion for Tele2's Russian arm and was also considering an offer for the whole of the parent Nordic telecoms group.
That would top an agreed sale to VTB that puts an enterprise value - or equity plus debt - on the business of $3.5 billion.
"We concluded this deal, it is legally binding, it is done," Yuri Soloviev, VTB's first deputy president and chairman of the management board, said on Thursday. The bank is open to bringing in strategic partners or financial backers, he said.
The Tele2 unit is Russia's fourth-biggest mobile operator, after MTS, MegaFon and Vimpelcom , with around 23 million subscribers in 2012. Some analysts speculated these operators or state-controlled Rostelecom could end up as shareholders.
"We remain interested in the opportunity to acquire (the Tele2 unit)," a spokeswoman for Vimpelcom said.
Soloviev said VTB had not been officially approached by any of the industry players inside or outside of Russia, but would consider any proposals on merit. He wants to keep it as a whole business as opposed to breaking it up.
"We will spend some time thinking about strategic development and potential shareholders who would come and give us value," Soloviev said. "These could be financial, strategic, Russians, outside investors."
An A1 spokesman said: "The price offered by VTB is below market (price) and we're prepared to increase it".
A1 did not say how much it might be prepared to pay for all of Tele2, which had a stock market value of $7.5 billion at Wednesday's close.
RUNNING THE FIGURES
"A price for the entirety of Tele2 is in the works - we are running the figures on a possible offer for the entire business," the spokesman said.
Stockholm-listed Tele2 said it was committed to the sale of its Russian business to VTB. The deal values Tele2 Russia's equity at $2.4 billion and includes the assumption of net debt of $1.2 billion.
Swedish investment firm Kinnevik, which has a 47.9 percent voting interest in Tele2, said it was "completely behind" the sale to VTB.
Some analysts, however, said the sale to VTB looked cheap. Andy Parnis at UBS said he was surprised at the low multiple paid, even with Tele2's lack of a data licence.
Tele2's Russian business has been in play since it lost out in a licensing auction for next-generation 4G services.
The sale values Tele2's Russian business in line with MTS and Vimpelcom, which trade at multiples of 4.7 and 4.3 times forecast 2013 earnings, even though it has superior growth prospects.
Tele2 investor relations head Lars Torstensson said analysts had put an average value of around 24 billion Swedish crowns ($3.7 billion) on Tele2's Russian unit, just above the sale price of 23 billion.
"We do believe this is a very fair price," said Soloviev. "The price we are paying is in line with the public market."
Barclays analyst JP Davids said the VTB deal was attractive because no regulatory issues are anticipated, whereas A1 is part of Fridman's group which owns a stake in rival Vimpelcom.
Fridman recently closed a deal alongside three other tycoons to sell their one-half stake in TNK-BP, Russia's third-largest oil firm, to state oil major Rosneft for $28 billion.
His Alfa Group, of which A1 is a part, received $14 billion and has said it plans to reinvest the proceeds in telecoms and oil projects.
The tycoon, worth $16.5 billion according to Forbes, also last year made $5 billion from the sale of his stake in MegaFon.
Tele2 is being advised on the deal by Morgan Stanley.
VTB is being advised by its investment bank arm VTB Capital.
($1 = 6.5162 Swedish crowns) (Additional reporting by Maria Kiselyova, Johan Ahlander, Niklas Pollard and Leila Abboud; Writing by Megan Davies; Editing by Erica Billingham and David Holmes)