* $3.5 bln deal with VTB has sparked rival offers
* MTS and Vimpelcom, A1 both bidding
* MTS-Vimpelcom say still interested in Tele2 Russia
* Tele2 says did not receive other cash bids before VTB deal
By Simon Johnson and Megan Davies
STOCKHOLM/MOSCOW, April 2 Nordic telecom
operator Tele2 defended a decision to sell its
Russian unit for $3.5 billion and spurn a higher offer from one
of Russia's wealthiest businessmen.
The deal with state-controlled bank VTB was
followed swiftly by counterbids from groups associated with
tycoon Mikhail Fridman, but Tele2 said the deal was already
done, prompting speculation that the Kremlin may have dictated
The counterbids were from the Russia's top mobile phone
operators, which could fear number-four player Rostelecom
will be merged with Tele2 Russia to challenge their
Those companies have shown their discontent at being shut
out of the bidding.
A1, Fridman's investment vehicle which made an all-cash bid
of $3.6-$4 billion, has threatened legal action against Tele2
and its advisor Morgan Stanley.
The other, $4.0-4.25 billion bid came from Vimpelcom
, part-owned by Fridman, in conjunction with No. 1 mobile
firm MTS. An MTS executive on Monday called it "strange
and dubious" for Tele2 to ignore a higher bid and urged its
management and board to start talks and show a "sign of life".
"My reading between the lines is that they have been told by
the Russian authorities that if they sell to VTB they will get a
fair price for the asset," said an analyst who declined to be
Tele2 announced the deal with VTB last week and analysts saw
it as a precursor to a re-sale of the business, with
state-controlled Rostelecom a likely buyer.
Rostelecom, which backed the idea of merging with Tele2
Russia in the past, recently attracted Arkady Rotenberg, a
construction tycoon who is a former judo sparring partner of
Putin, as a shareholder and changed its CEO.
It declined to comment about Tele2 on Tuesday.
NO BREAK CLAUSE
Fridman, worth $16.5 billion according to Forbes, is flush
with cash after closing a $28 billion deal with three tycoons to
sell a stake in oil firm TNK-BP.
But Tele2 said its deal cannot be reopened to new bidders.
"It is easy to come in with bids after we have closed the
deal. Those offers were obviously not on the table when we
entered into the exclusivity arrangements with VTB," Tele2's CEO
Mats Granryd said on a conference call with analysts on Tuesday.
He said Tele2 talked to most, if not all, players in the
Russian market before entering into an exclusive arrangement
with VTB on Feb. 22, but that no cash bids were made. It looked
at all options such as joint ventures and partnerships, he said.
"When VTB came, it represented a very good deal with very
good value," Tele2's head of investor relations Lars Torstensson
said. "We decided to give them a very short period of time of
Tele2 said there was no break clause in the deal with VTB
which would allow it to revoke it on payment of penalties.
Kinnevik, Tele2's biggest shareholder with a
stake of 30.5 percent of its capital and 47.9 percent of the
votes, has said it fully supports the VTB deal.
MTS and Vimpelcom were unfazed, saying they would press
ahead with their offer.
MTS said that, prior to the VTB deal being announced, it had
tried to contact Tele2 about an offer but that the Nordic
company "categorically cancelled every contact (since February)
and did not allow their advisors to be in contact with us".
"(Tele2) must have known MTS and Vimpelcom were interested
and that they could have negotiated a higher price," said Anna
Lepetukhina, telecoms analyst at Sberbank. "Of course
it raises questions - but what else is in the agreement? This
might explain why they chose VTB instead of other parties."
Tele2 also disclosed that its deal with VTB included a
provision that it has the rights to half the profit obtained by
the state bank if VTB re-sells Tele2 Russia within a year.
The analyst who asked not to be named cautioned against
pricing the asset-flip provision into Tele2's valuation, saying
it could take over a year to structure a deal.
Analyst Lepetukhina said that Rostelecom buying Tele2 Russia
would imply the worst-case scenario for the big three mobile
players, but Rostelecom would still need to prove it can
"It doesn't necessarily mean that... they will immediately
become the strong national player," she said.