* Sees extraordinary Vimpelcom dividend if Wind deal dropped
* Sends letter to Vimpelcom shareholders to reject Wind deal
* Letter warns of big debt burden, slower growth prospects
By Wojciech Moskwa
OSLO, March 4 Norway's Telenor, seeking allies
among Vimpelcom's minority shareholders to thwart the Russian
operator's $6 billion Wind Telecom purchase plan, offered the
prospect of an extra dividend from Vimpelcom if the deal failed.
Telenor (TEL.OL) faces an uphill battle to convince more
than 70 percent of independent Vimpelcom VIP.N owners to
reject the Wind deal with Egyptian tycoon Sawiris Naguib at a
shareholders' meeting scheduled for March 17.
In a letter sent to Vimpelcom shareholders by Telenor on
March 2 and obtained by Reuters on Friday, the Norwegian
operator said if the deal failed it would seek an extraordinary
payout of at least $1 per share on top of any regular dividend.
"A better alternative for all shareholders is the payment of
an extraordinary dividend," Telenor said in a six-page letter to
Vimpelcom shareholders that calls on them to reject the deal.
Telenor is seeking to regain the initiative after a London
court this week denied its injunction to stop the vote.
Telenor's head of mergers and acquisitions, Torbjoern Wist,
said he has had positive feedback from meetings with Vimpelcom's
financial shareholders, who jointly hold 19.3 percent of voting
stock. But with Telenor with 36 percent of Vimpelcom votes and
pro-Wind group Altimo 44.7 percent, victory will be tough.
"I'm not going to say this is not going to be a challenge,"
Wist told Reuters in an interview. "But we are encouraged by our
meetings so far and also by the clear recommendation against the
Wind deal by the (shareholders' support services group) ISS."
Telenor plans to meet with as many Vimpelcom shareholders as
possible before the meeting, raising questions about the deal's
strategic and financial rationale.
Vimpelcom sees the Wind deal, which will give it all of Wind
Italy and a majority stake in Egypt's Orascom Telecom ORTE.CA,
as a way to boost its geographical footprint and become one of
the world's largest emerging market mobile services providers.
In the letter, Telenor says the deal will cut Vimpelcom's
revenue and EBITDA (core profit) growth profile, as well as its
margins, in part because of Wind Italy's sour outlook as an
indebted, No. 3 operator on a mature Italian mobile market.
Furthermore, Telenor argues, Vimpelcom is paying an 84
percent equity premium for Wind Telecom assets, based on the
market capitalisation of Orascom adjusted for the spin-offs and
the implied value of Wind Italy based on its peers.
Telenor said that as a result of the transaction,
Vimpelcom's consolidated debt would rise to $25.7 billion from
$6.5 billion, while its consolidated EBITDA would increase by
only $4 billion, in the best case scenario. If Algeria takes
over Orascom's unit there, that would fall to $3 billion.
Vimpelcom was not immediately available for comment.
"I am glad Telenor is active in working with minorities,"
said Elena Suslova, a fund manager at Moscow-based Wermuth Asset
Management, which owns Vimpelcom shares. "Altimo is (however)
more effective since it seems to have better access to the
shareholder base of Vimpelcom. This is my impression as a
Wist said the ISS, an advisory body, has come out against
the Wind deal in large part because it would undermine
Vimpelcom's corporate governance structure, which now carefully
balances power between Telenor, Altimo and the independents.
"Wind would get 30 percent of Vimpelcom's voting stock,
which will crowd out the independents and over time may also
reduce their representation on Vimpelcom's board," he said.
Telenor is also in arbitration about whether it can take
part in Vimpelcom's share issue for Sawiris, which would not
stop the deal, but would allow it to keep its stake and ease its
concerns that it was handing control of Vimpelcom to Sawiris and
Altimo's owner, Russian billionaire Mikhail Fridman.
(With additional reporting by John Bowker and Anastasia
Teterevleva in Moscow; Editing by Will Waterman)