* $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 (Reuters) - 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 proceedings.
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 dominance.
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 named.
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.
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 exclusivity.”
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 challenge them.
“It doesn’t necessarily mean that... they will immediately become the strong national player,” she said.